According to Emanuel Derman, writing in the Journal of Derivatives, Winter, 2000, p. 64 he...
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According to Emanuel Derman, writing in the Journal of Derivatives, Winter, 2000, p. 64 he says Good theories, like Black-Scholes-Merton, provide a theoretical laboratory in which you can explore the likely effect of possible causes. They give you a common language with which to quantify and communicate your feelings about value. Riding on that background and given the following information Current Price of underlying asset k100 Strike price of underlying asset k80 One period risk free rate of return 10% Stock price can either go up or down by 20% Time period 6 months i. Determine the call value ii. What is the time value for holding on to the option iii. What is the Put Option Price using the PUT-CALL Parity relationship
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