Option Pricing
Not what you're looking for?
The following are prices of options traded on Microsoft Corporation, which pays no dividends.
Call Put
K=85 K=90 K=85 K=90
1 month 2.75 1.00 4.50 7.50
3 month 4.00 2.75 5.75 9.00
6 month 7.75 6.00 8.00 12.00
The stock is trading at $83, and the annualized riskless rate is 3.8%. The standard deviation in the stock prices (based upon historical data) is 30%.
a. From the options above, identify those that are "in the money" and those that are "out of the money."
b. Explain why the 1-month call option with a strike price of $90 has value.
c. Explain why the 3-month and 6-month options have prices or premiums that are higher than those for the 1-month options.
d. Estimate the value of a three-month call, with a strike price of $85.
e. Using put-call parity, estimate the value of a three-month put with a strike price of $85.
Purchase this Solution
Solution Summary
This solution discusses option pricing.
Purchase this Solution
Free BrainMass Quizzes
Measures of Central Tendency
Tests knowledge of the three main measures of central tendency, including some simple calculation questions.
Know Your Statistical Concepts
Each question is a choice-summary multiple choice question that presents you with a statistical concept and then 4 numbered statements. You must decide which (if any) of the numbered statements is/are true as they relate to the statistical concept.
Measures of Central Tendency
This quiz evaluates the students understanding of the measures of central tendency seen in statistics. This quiz is specifically designed to incorporate the measures of central tendency as they relate to psychological research.
Terms and Definitions for Statistics
This quiz covers basic terms and definitions of statistics.