Question

price of a non-dividend-paying stock is currently $40. periods it will go up by 5% or down with continuous com- 1. (30 points) The Over each of the next two four-month by 3%: The risk free interest rate is 3% per annum pounding. Consider an eight-month option on the stock, with a strike price of $41. a) (5 points) What is the rick-neutral probability (P- 1-p)? b) (10 points) What is the price of the option if it is a European call option? e) (10 points) What is the price of the option if it is a European put option? d) (5 points) Verify the put-call parity.

Answer 1

Solution:- aiJan Tna The Pice CA. 4 40 0.9 38. 41 P38.9 C1-P): 40 e ·40:40 2-33-3 :〉 P 238.9 Cb) Cal loption Pa bur puょoption 0.74 Pay ob ' 44.1-4 40 구 38.8 0 , 57.636 0 3.36 call option 3-1 (0,s)(o·s) price: cc) Put opeion Psice -. 4o.1S