Describe the effect on a put option’s price that results from an increase in each of the following factors:
stock price,
strike price,
time to expiration,
risk-free rate, and
standard deviation of stock return.
(1)
stock price: Put option price decreases with increase in stock
price as it becomes less favorable to exercise the option
(2)
strike price: Put option price increases with increase in strike
price as it becomes more favorable to exercise the option
(3)
time to expiration: Put option price increases with increase in
time to expiration as time value and thus chance of being exercised
increases
(4)
risk-free rate: Put option price may increase or decrease with
increase in risk free rate but generally decreases
(5)
standard deviation of stock return: Put option price increases with
increase in standard deviation of stock return as chance to get
exercised increases
Describe the effect on a put option’s price that results from an increase in each of the following factors: (1) stock p...
Describe the effect on a call option’s price that results from an increase in each of the following factors: (1) stock price, (2) strike price, (3) time to expiration, (4) risk-free rate, and (5) standard deviation of stock return.
8. The five factors affecting prices of call and put options Both call and put options are affected by the following five factors: the exercise price, the underlying stock price, the time to expiration, the stock’s standard deviation, and the risk-free rate. However, the direction of the effects on call and put options could be different. Use the following table to identify whether each statement describes put options or call options: Statement Put Option Call Option 1. An increase in...
6.Determine put option price from the following data: Current stock price Rs. 1260, strike price Rs.1280, Time to expiration 3 months, Volatility 30%, Annual risk-free rate 11 12% Use Black-Scholes formula
. Assume the following for a stock and a call and a put option written on the stock. EXERCISE PRICE = $20 CURRENT STOCK PRICE = $22 VARIANCE = .25 Standard Deviation = .50 TIME TO EXPIRATION = 4 MONTHS T = .33 RISK FREE RATE = 3% Use the Black Scholes procedure to determine the value of the call option and the value of a put.
1. What is the value of the following call option according to the Black Scholes Option Pricing Model? What is the value of the put options? Stock Price = $42.50 Strike Price = $45.00 Time to Expiration = 3 Months = 0.25 years. Risk-Free Rate = 3.0%. Stock Return Standard Deviation = 0.45.
current stock price = rs 1260Strike price = rs 1280 Time to expiration = 3 months Volatility = 30% p.a.Annual risk free rate = 12%Annual dividend yield = 5%
The current stock price of Johnson & Johnson is $50, and the stock does not pay dividends. The instantaneous risk-free rate of return is 3%. The instantaneous standard deviation of J&J's stock is 30%. You want to purchase a put option on this stock with an exercise price of $41 and an expiration date 55 days from now. Using Black-Scholes, the put option should be worth ______ today.
Problem 12. A European call and put option on a stock both have a strike price of $30 and an expiration date in three months. The price of the call is $3, and the price of the put is $2.25. The risk free interest rate is 10% per annum, the current stock price is $31. Indentify the arbitrage opportunity open to a trader.
A stock's current price is $72. A call option with 3-month maturity and strike price of $ 68 is trading for 6, while a put with the same strike and expiration is trading for $20. The risk free rate is 2%. How much arbitrage profit can you make by selling the put and purchasing a synthetic put? (Provide your answer rounded to two decimals.) You have purchased a put option for $ 11 three months ago. The option's strike price...
4. Assume the following for a stock and a call and a put option written on the stock. EXERCISE PRICE = $20 CURRENT STOCK PRICE = $22 VARIANCE = .25 TIME TO EXPIRATION = 4 MONTHS RISK FREE RATE = 3% B) Use the Black Scholes procedure to determine the value of the call option and the value of a put.