Question

For A 6-month European call option on a stock, you are given:

(1) The stock price is 150.

(2) The strike price is 130.

(3) u=1.3u=1.3 and d=0.7d=0.7.

(4) The continuously compounded risk-free rate is 6%.

(5) There are no dividends.

The option is modeled with a 2-period binomial tree.

Determine the option premium.

Answer #1

a) A stock currently sells for $33.75. A 6-month call option
with a strike price of $33 has a premium of $5.3. Let the
continuously compounded risk-free rate be 6%.
What is the price of the associated 6-month put option with the
same strike (to the nearest penny)?
Price = $ -------------------
b) A stock currently sells for $34.3. A 6-month call option with a
strike price of $30.9 has a premium of $2.11, and a 6-month put
with...

Price a European call option on non-dividend paying stock by
using a binomial tree. Stock price is €50, volatility is 26%
(p.a.), the risk-free interest rate is 5% (p.a. continuously
compounded), strike is € 55, and time to expiry is 6 months. How
large is the difference between the Black-Scholes price and the
price given by the binomial tree?

Price a European call option on non-dividend paying stock by
using a binomial tree. Stock price is €50, volatility is 26%
(p.a.), the risk-free interest rate is 5% (p.a. continuously
compounded), strike is € 55, and time to expiry is 6 months. How
large is the difference between the Black-Scholes price and the
price given by the binomial tree?

There is a six month European call option available on XYZ stock
with a strike price of $90. Build a two step binomial tree to value
this option. The risk free rate is 2% (per period) and the current
stock price is $100. The stock can go up by 20% each period or down
by 20% each period.
Select one:
a. $14.53
b. $17.21
c. $18.56
d. $12.79
e. $19.20

Suppose that a 6-month European call A option on a stock with a
strike price of $75 costs $5 and is held until maturity, and
6-month European call B option on a stock with a strike price of
$80 costs $3 and is held until maturity. The underlying stock price
is $73 with a volatility of 15%. Risk-free interest rates (all
maturities) are 10% per annum with continuous compounding.
Use put-call parity to explain how would you construct a
European...

A 3-month call option on a stock is modeled as a binomial tree.
You are given:
(1) The stock price is 50.
(2) The strike price is 55.
(3) r=0.08r=0.08.
(4) δ=0.05δ=0.05.
(5) σ=0.4σ=0.4.
Determine the premium of the call option.

You are given the following information about a European call
option on Stock XYZ. Use the Black-Scholes model to determine the
price of the option:
Shares of Stock XYZ currently trade
for 90.00.
The stock pays dividends continuously
at a rate of 3% per year.
The call option has a strike price of
95.00 and one year to expiration.
The annual continuously compounded
risk-free rate is 6%.
It is known that d1 – d2 = .3000;
where d1 and d2...

The price of a European call option on a non-dividend-paying
stock with a strike price of $50 is $6. The stock price is $51, the
continuously compounded risk-free rate (all maturities) is 6% and
the time to maturity is one year. What is the price of a one-year
European put option on the stock with a strike price of $50?
a)$9.91
b)$7.00
c)$6.00
d)$2.09

. A stock is currently selling for $20.65. A 3-month
call option with a strike price of $20 has an
option premium of $1.3. The risk-free rate is 2 percent and the
market rate is 8 percent. What is the option premium on a 3-month
put with a $20 strike price? Assume the options
are European style.

For a European 3-month call option, you are given:
(1) The price of the underlying stock is 50.
(2) The strike price is 48.
(3) The stock pays no dividends.
(4) σ=0.25σ=0.25.
(5) r=0.06r=0.06.
Calculate the elasticity of the call option.

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