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How much is the current credit risk

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Adam Michaels thinks that the price of American Express (AXP) stock, currently at $129.57, will increase in the next 6 months, so he purchases a European call option on AXP stock expiring in six months. The call option has a strike price of $105 and is selling for $28.05. The interest rate is 3% APR, continuous compounding.

  • One month into the contract, is there any current credit risk? If yes, who bears it? How much is the current credit risk?
  • One month into the contract, is there any potential credit risk? If yes, who bears it? How much is the potential credit risk?

Reference no: EM132473998

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