FREE Trial

A stock has a current price of $132.43. For a particular European put option that expires in

Question:

A stock has a current price of $132.43. For a particular European put option that expires in three weeks, the probability of the option expiring in-the-money is 63.68 percent and the annualized volatility of the continuously com-pounded return on the stock is 0.76. Assuming a continuously compounded risk-free rate of 0.0398 and an exercise price of $130, by what dollar amount would the option price be predicted to have changed in three days assuming no change in the underlying stock price (or any other inputs besides time)?
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 42% (14 reviews)

The rate of time value decay can be measured by the opt...View the full answer


answer-question-section
Answered By
tutor-profile-image
Bhartendu Goyal
Professional, Experienced, and Expert tutor who will provide speedy and to-the-point solutions. I have been teaching students for 5 years now in different subjects and it's truly been one of the most rewarding experiences of my life. I have also done one-to-one tutoring with 100+ students and help them achieve great subject knowledge. I have expertise in computer subjects like C++, C, Java, and Python programming and other computer Science related fields. Many of my student's parents message me that your lessons improved their children's grades and this is the best only thing you want as a tea...
3.00+ 2+ Reviews 10+ Question Solved
Related Book For  book-img-for-question
Introduction To Derivatives And Risk Management

Introduction To Derivatives And Risk Management

ISBN: 9781305104969

10th Edition

Authors: Don M. Chance, Robert Brooks

See More Books
Question Posted:
See More Questions

Related Video

A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.

Students also viewed these Finance questions

Roughing It Finest Annotation - ISBN: 979-8854145848 - Free Book