A put option on a stock with three months to maturity has the exercise price of $60.

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A put option on a stock with three months to maturity has the exercise price of $60. The stock is currently traded at $59 per share and a volatility of 30% per annum. The continuously compounded risk free rate is 3.50% per annum.

a. Using one month steps, what would be the price of the option if it is a European put option?

b. What is the price of the option if it is an American put option which could be exercised early? When is it likely to be exercised?

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Financial statements

ISBN: 978-007802531

5th Edition

Authors: Stephen Barrad

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Posted Date: Jun 07, 2023 10:13 AM

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A put option on a stock with three months to maturity has the exercise price of $60.

Question:

Expert Answer:

To solve this problem we can use the BlackScholes formula for pricing options The formula for a European put option is P SNd1 KerTNd2 where S current stock price K exercise price r riskfree interest r... View the full answer

Financial statements

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