Suppose the date is October 27 th . On this date, the Cloud Corporation's stock trades at
Question:
Suppose the date is October 27th. On this date, the Cloud Corporation's stock trades at $15.36. On this date, the most actively traded option for this stock is a call option with November maturity and a strike price of $17.50, which has exactly 30 days until expiration. Assume a US Treasury Bill with the same maturity has an annualized return of 1.20%. Assume the variance of the stock price is 10% annually. You can assume that options for Cloud Corporation have European type exercise structure.
Calculate the Black-Scholes price for the call option described?
Calculate the price of a put option that has the same strike price and maturity as the call option?
If the call option described above trades for $0.1 in the market, what would you expect the market price of the same call option to be if the stock price increases to $16.15?
Fundamentals of Advanced Accounting
ISBN: 978-0077667061
5th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik