Question

12) Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. Briefly discuss results. a. What is the price of the option if it is a European call

Answer 1

Step-by-step explanation:

Complete question

Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months.

a) What is the price of the option if it is a European call?

b) What is the price of the option if it is an American call?

c) What is the price of the option if it is a European put?

d) Verify that put-call parity holds.

The solution can be seen in the attached picture.