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1) The given information is given about options on stock of the certain company:
S0 = $20, X =$20, r =5% (c.c.), T = 0.5 year, σ = 0.20

No dividends are expected. One option contract is for= 100 shares of stock. All notations are used in the similar method as in Black-Scholes-Merton Model.

Answer the following problems:

i) Determine European call option price and European put option price, according to Black-Scholes model?
ii) Compute the cost of buying the protective put?
iii) Compute the cost of writing the covered call?

2) What will be = payoff and profit of = protective put if stock price on maturity is= $16, $18, $20, $22, or $24?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915081

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