Actual price for the call option on the derivative

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The current stock price is $125. You consider buying call or put options on that stock with a strike price of 130 and a time to expiry of 85 days. The term structure of interest rates is flat up to 1 year at 2% and the historic volatility is 25%, measured by the standard deviation. Based on the Black-Scholes model, what would be the fair value of the call and put option? Explain why the actual price for the call option on the derivative exchange is higher than the one you have calculated.

Reference no: EM133003621

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