Consider ABC stock is currently selling at $90. Assume that next period the stock price will be
Fantastic news! We've Found the answer you've been seeking!
Question:
Consider ABC stock is currently selling at $90. Assume that next period the stock price will be either $117 or $80. Assume also that there is a call option with exercise price of $92 and risk free interest rate is 4%. i. Show the evolution of both ABC stock price and call option written on it. ii. Find the no arbitrage value of the call option using BOP. iii. Suppose the call option currently is trading at $16 in the market. Is there arbitrage profit? If there is, find out how you get it and how much it is?
Related Book For
Introduction To Derivatives And Risk Management
ISBN: 9781305104969
10th Edition
Authors: Don M. Chance, Robert Brooks
Posted Date: