Calculate the price of a call and a put option with exercise price $10 and 26 weeks
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Question:
- Calculate the price of a call and a put option with exercise price $10 and 26 weeks to maturity by using Black Scholes. The initial price of the stock is $13. The risk-free rate is 2.43% per year and the standard deviation of stock returns is 12% per year.
- The stock of question 1 has a price of $13, which can later be $15 or $11 with different probabilities. The options (calls and puts), with an exercise price $10, are the ones you valued in question 1. For all range of probabilities:
- Calculate the expected returns and standard deviation for a covered call and protective put portfolio.
- How does the standard deviation of these three alternatives compare?
- For which combination of probabilities each alternative have a positive return?
Related Book For
Finance Applications and Theory
ISBN: 978-0077861681
3rd edition
Authors: Marcia Cornett, Troy Adair
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