Question

A stock index currently has a value of 972. The risk-free rate is 4.60% per annum...

A stock index currently has a value of 972. The risk-free rate is 4.60% per annum and the dividend yield on the index is 2.40% per annum. A three-month European call option on the index with a strike price of 965 is currently priced at $14.17. Calculate the value of a put option with three-month remaining with a strike price of 965?

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Answer #1

Information given in the problem

Stock index price(S) = 972

Risk-free rate per annum (r) = 4.6%

Divivdend yield per annum (q) = 2.4%

Time to maturity of call option (T) = 3months

Strike price of call option (K) = 965

Price of call option (C) = 14.17

To calculate price of put option having 3 months to maturity and strike price at 965 , use put-call parity equation

S * e^(-q*t) + p = c +K * e^(-r*t)

972 * e^(-(2.4/100)*(3/12)) + p = 14.17 + 965 *e^(-(4.6/100)*(3/12))

966.185 + p =14.17+ 953.9661

p = 14.17 +953.9661 -966.185

p = 1.95

The price of put option is 1.95

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