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Call and Put Prices

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AD 13: The Dow Jones Industrial Average on December 22, 2009 was 10,464 and the price of the March 100 call was $5.00. Assume the risk-free rate is 3.2%, the dividend yield is 2% and the option expires on February 20, 2010. (Note that the options are on the Dow Jones Index divided by 100.)

Q1: Use Derivagem to calculate the implied volatility of the call option.

Q2: Use put-call parity to estimate the no arbitrage price of a March 100 put.
Q3: Given the price determined in Q2, use Derivagem to calculate the implied volatility of the put option.
Q4: What do you conclude about put-call parity and implied volatility for European options?

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Solution Summary

Uses software (Derivagem) to calculate option prices and implied volatility.

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