Consider an option on a stock when the stock price is $41, the strike price is $40, the risk free rate is 6 , the volatility is 35 , and the time to maturity is 1 year Assume that a dividend of $0 50 is expected after six months a Use DerivaGem to value the option assuming it is a European call b U...

a b c d DerivaGem shows that the price of the call option is 69686 and the p ...

Consider an option on a stock when the stock price is $41, the strike price is $40,

Question:

Consider an option on a stock when the stock price is $41, the is $40, the risk-free rate is 6%, the volatility is 35%, and the time to is 1 year. Assume that a of $0.50 is expected after six months.
a. Use DerivaGem to value the option assuming it is a European call.
b. Use DerivaGem to value the option assuming it is a European put.
c. Verify that put–call parity holds.
d. Explore using DerivaGem what happens to the price of the options as the time to becomes very large. For this purpose assume there are no dividends. Explain the results you get.
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...