The following information is given about an Option on a stock: S(0)=$31, X-$34, rf-9%, variance (sigma squared)=20%, T=182.5 days, Dividend $1.75 in 45 days (1) Calculate the price of a European put option using the Black-Scholes pricing model (show all workings including d1, d2, N(d1), N(d2)) (2) Calculate the price of the corresponding European call option (hint: put call parity) (3) Suppose you feel that the put option is overpriced. What strategy should you use to exploit the apparent mispricing?

The following information is given about an Option on a stock: S(0)=$31, X-$34, rf-9%, variance (sigma squared)=20%, T=182.5 days, Dividend $1.75 in 45 days (1) Calculate the price of a European put option using the Black-Scholes pricing model (show all workings including d1, d2, N(d1), N(d2)) (2) Calculate the price of the corresponding European call option (hint: put call parity) (3) Suppose you feel that the put option is overpriced. What strategy should you use to exploit the apparent mispricing?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 5MC: In 1973, Fischer Black and Myron Scholes developed the Black-Scholes option pricing model...

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