Question:
Using the data in Table 21.1, compare the price on July 24, 2009, of the following options on JetBlue stock to the price predicted by the Black-Scholes formula. Assume that the standard deviation of JetBlue stock is 65% per year and that the short-term risk-free rate of interest is 1% per year.
a. December 2009 call option with a $5 strike price
b. December 2009 put option with a $6 strike price
c. March 2010 put option with a $7 strikeprice
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TABLE 21.1 JetBlue Option Quotes JBLU 5.03 +0.11 Vol 7335887 Jul 24 2009 17:17 ET Bid 5.03 Ask 5.04 Size 168 x 96 Open Int Bid Ask Vo Open Int Calls Bid Ask Vol Puts 0.80 0.90 61000 1.40 1.500 0.85 0.95 10 14737 09 Dec 5.00 (UGO LA 0.80 0.90 47 5865 09 Dec 5.00 UGO XA 045 0.55 0.85 1.00125 2 259 09 Dec 6.00 UGQ XF 643310 Jan 5.00 (JGO MA 20 Jan 6.00 GO MF 818 10 Jan 9.00 JGO MI 10 Jan 5.00 WGO AA) 0 Jan 6.00 WGO AF)0.50 0.60 10 Jan 9.00 WGO A) 10 Mar 5.00 JGO CA) 10 Mar 6.00 (JGO CF 0 Mar 700 UGa cG 1.45 1.55 0 0.05 | 0.15 | 0| 1.05 1.15 0.65 0.75 0 0.40 0.50 4.00 410 0 50 10 Mar 5.00 UGO OA) 146 10 Mar 6.00 NGO OF 3 10 Mar 700 JGO OG) 1.00 1.100 1.60 1.70 10 2.30 2.45 10 40