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As an expert in pricing financial derivatives, your friend, John, approached you seeking a professional advice on the fair price of the European style call and put option on the FTSE 100 index. The following data relate to the FTSE 100 index.
Current price: 7125
Dividend Yield: 2.95%
Volatility: 13.25%
The risk-free rate of interest is 1%.
Required:
1) Estimate the value of a European exercise call option on the index with an exercise price of 7100 and 100 days to run.
2) Estimate the value of a European exercise put option on the index with the same exercise price and expiry date
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