a. Use the Black-Scholes formula to find the value of a put option on the following...
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a. Use the Black-Scholes formula to find the value of a put option on the following stock: Time to maturity = 12 months T- Standard deviation 20% per year 6 =0,2 Exercise price = $100 X=100 Stock price = $100 S=100 Interest rate = 5% Y=0,05 Annual dividend yield = 0% =0 b. Suppose one can find a $10 call option on the stock in part (a) with the same exercise price and maturity as the put option. Would an arbitrage opportunity exist? If so, what would be the arbitrage strategy? (You need to specify long and short of these positions as well as initial and ending cash flows.) a. Use the Black-Scholes formula to find the value of a put option on the following stock: Time to maturity = 12 months T- Standard deviation 20% per year 6 =0,2 Exercise price = $100 X=100 Stock price = $100 S=100 Interest rate = 5% Y=0,05 Annual dividend yield = 0% =0 b. Suppose one can find a $10 call option on the stock in part (a) with the same exercise price and maturity as the put option. Would an arbitrage opportunity exist? If so, what would be the arbitrage strategy? (You need to specify long and short of these positions as well as initial and ending cash flows.)
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SOLUTION a The BlackScholes formula for a put option is P SNd1 XerTNd2 Where P price of the put opti... View the full answer
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0071051606
8th Canadian Edition
Authors: Stephen A. Ross, Randolph W. Westerfield
Posted Date:
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