Volatility of Call and Put Option
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The Dow Jones Industrial Average on January 12, 2009 was 8474 and the price of the March 84 call was $4.50. Assume the risk-free rate is 3.2%, the dividend yield is 2% and the option expires on March 20, 2009 (Note that the options are on the DJI dividend 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 84 put.
Q3: Given the price determined in Q2, use Derivagem to calculate the implied volatility of the put option.
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Solution Summary
Using Derivagem calculates the volatility of call option, using put-call parity estimates the no arbitrage price of a put, and then using Derivagem calculates the volatility of the put option in the solution.
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