Suppose the risk free rate is r= 2% (EAR). Also say that Facebook's current stock price is $225. Suppose that Facebook's stock at t=1 will either rise to $250 (60% chance actual probability) or fall to $200 (40% chance actual probability).

 

a) consider a put written on Facebook expiring in 1 year struck at K = $240. Find the change of the put.

Note: the put is a bet on down, so the change will be negative.

b) find the price of a put written on Facebook expiring in 1 year struck at K = $240

Answer rating: 100% (QA)

a To find the change of the put we need to calculate the difference between the strike price and the ... View the full answer