Answer 1.3.9 problem

stock price equal to exercise price =115 stock price up= 149.5 stock price down = 92 risk free rate= 0.015

The price for call option is 14.62 , the price for put option is 12.91

An Abridged Introduction to Finance 1.3.8 Problem: Use the replicating portfolio method (Example 1.11) to estimate the current value of a six-month call option on a stock with the following characteristics. The current price is 25, the exercise price is E20, at exercise time it is estimated that the stock will be in the range of E15 to E40, and the six-month risk-free interest rate is 5%. Also, compute the value of the corresponding put option using the put-call parity relation. 1.3.9 Problem: In Example 1.11 we encounter the option delta ( for a call), which is computed as the quotient of the spread of possible option prices over the spread of possible share prices Eq. (1.22). Denote this quantity Ac, and we have seen that it gives the number of shares needed to replicate a call option. Define analogously Ap to be the option delta for a put, and show that for a call and a put European options on the same stock and with the same strike price, Ap = Ac-1. (Hint: use the put-call parity for European options.)