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Jack has 200 shares of Allied Business Corporation (ABC) in his portfolio with a current share price of $33. Several derivative securities are available relating to the shares of this firm. Jack is interested in buying put options on these shares.
Call options are also available on ABC shares, with an expiry date in 6 months. Both the call and out options have an exercise price of $30 are written on ABC shares, and have 6 months to maturity. The risk-fee rate is now 5% per annum and the standard deviation of the ABC share price is estimated to be 12%.
Required:
a) Using the Black-Scholes option pricing model, calculate the premium on the ABC call options.
b) Using put-call parity, calculate the premium on the put options.
c) Identify 5 variables that affect put option value and the direct of their effect (ie put option value positively or negatively correlated to variable).
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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