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6) Consider an option on a non-dividend paying stock when the stock price is $38, the...

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Finance

6) Consider an option on a non-dividend paying stock when thestock price is $38, the exercise price is $40, the risk-freeinterest rate is 6% per annum, the volatility is 30% per annum, andthe time to maturity is six months. Using Black-Scholes Model,calculating manually, a. What is the price of the option if it is aEuropean call? b. What is the price of the option if it is aEuropean put? c. Show that the put-call parity condition holds (ordoes not hold)?

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4.5 Ratings (809 Votes)
a As per Black Scholes Model Value of call option SNd1Nd2Kert Where S Current price 38 t time to expiry 05 K Strike price 40 r Risk free rate 60 q Dividend Yield 000 Std dev 30 d1 lnSKrq22tt12 d1    See Answer
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6) Consider an option on a non-dividend paying stock when thestock price is $38, the exercise price is $40, the risk-freeinterest rate is 6% per annum, the volatility is 30% per annum, andthe time to maturity is six months. Using Black-Scholes Model,calculating manually, a. What is the price of the option if it is aEuropean call? b. What is the price of the option if it is aEuropean put? c. Show that the put-call parity condition holds (ordoes not hold)?

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