Question: Consider a stock whose current price is $30. Its price follows a geometric Brownian motion process with expected return ()=8% p.a. and standard deviation

Consider a stock whose current price is $30. Its price follows a

Consider a stock whose current price is $30. Its price follows a geometric Brownian motion process with expected return ()=8% p.a. and standard deviation (s) 25% p.a. The current risk- free rate is 2% p.a. Suppose you have a put option on this stock with an exercise price of $28 and time to maturity of 6 months. What is the price of this put option? Also, what is the (real-world) probability that this put will be in the money at maturity?

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Answer To calculate the price of the put option we can use the BlackScholes formula for European put ... View full answer

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