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Shares of Novotel: Options example

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Shares of Novotel will sell for either $150 or $80 three months later, with probabilities 0.60 and 0.40, respectively. A European call with an exercise price of $100 sells for $25 today, and an identical put sells for $8. Both options mature in three months. What is a price of a three-month zero-coupon bond with a face of $100?

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Solution Summary

The price of 2 call and 5 put is calculated for the Novotel example.

Solution Preview

Call and put payoffs:

150-100=50
Call <
0

...

Solution provided by:
Umut Oltulu, MBA
Education
  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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