Compute the value of a six-month european call option

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A stock price is currently 43. It is known that at the end of six months it will be either 47.73 or 39.56. The risk-free interest rate is 4% per annum with continuous compounding.

a. Using the Binomial model compute the value of a six-month European call option with a strike price of 40.

b. Using the Binomial model compute the value of a six-month European put option with a strike price of 40.

c. Verify that the European call and European put prices satisfy the put-call parity.

Reference no: EM133002204

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