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You own a portfolio of 100,000 shares of Standard & Poor's depository receipts (SPDRs). Each share trades at 113.18. The returns of the S&P 500
You own a portfolio of 100,000 shares of Standard & Poor's depository receipts (SPDRs). Each share trades at 113.18. The returns of the S&P 500 index have a historical annualized standard deviation of 20 percent and the continuously compounded interest rate is 2 percent. Assume that the S&P 500 index does not pay any dividends. Suppose that the expected return of the S&P 500 index is 7 percent and that the beta is 1. a. What is the Black-Scholes value of a European call option on SPDRs with a one year expiration period and an exercise price of 100? b. What is the Black-Scholes value of a European put option on SPDRs with a one year expiration period and an exercise price of 100
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