Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The stock price of Hoya Inc is currently $100 and Hoya Inc does not pay dividends. The 3-month European call option (on Hoya stock) price
The stock price of Hoya Inc is currently $100 and Hoya Inc does not pay dividends. The 3-month European call option (on Hoya stock) price is $5.4. And the 3-month European put option (on Hoya stock) price is $5.6. Both options have the same strike price of K. Assume there are no arbitrage opportunities associated with the call and put options. Georgetown Asset Management creates a new European option for Hoya Inc's stock that pays off the option holder max(STK,0), where ST represents Hoya's stock price on the maturity date, and K represents the option strike price. The risk-free interest rate is 10% per annum (continuously compounded). If the maturity of this new option is 3-month, and the strike price is K, what's the fair price of the new option? Round your answer to one decimal place
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started