Question

7a. If the current price of oil is $20.86 per barrel, the risk free interest rate...

7a. If the current price of oil is $20.86 per barrel, the risk free interest rate is 2.0%, the cost to store oil for one year is 10% of the price and the standard deviation of oil prices is 0.6255, b. What is the price of a 1-year put option on oil with a strike price of $34.15 barrel?

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Answer #1

Given,

Spot price = $20.86

Strike price = $34.15

Volatility = 0.6255

Risk free = 2%

Time period = 1

Black whole formula for option pricing is :

Putting all the values in the formula we get,

Put price = $12.61

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