Financial risk management.
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Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, the time to maturity is four months, and the stock is due to go ex-dividend in 1.5 months. The expected dividend is 50 cents.
(a) What is the price of the option if it is a European call?
(b) What is the price of the option if it is a European put?
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Solution Summary
This solution calculates two prices of a non-dividend-paying stock given it being a European call or put.
Solution Preview
Once again, we can use the Matlab financial toolbox function "[Call, Put] = ...
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