Two European call options with an exercise price of $60 are written on two different shares. Suppose that tomorrow, the low-volatility share will have a price of $60 for certain. The high-volatility share will be worth either $40 or $80, with each price having equal probability. If the exercise date of both options is tomorrow, which option will be worth more today? Explain your answer

Answer rating: 100% (QA)

To determine which option will be worth more today we need to compare the expected payoffs of ... View the full answer