How nature of in-the-money european calls would change

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1. Why might two calls or puts alike in all respects but time to expiration have approximately the same price?

2. Why might two calls or puts alike in all respects but exercise price have approximately the same price?

3. Assume that European call and put options exist on a stock. That stock, however, is the target of a takeover in which an acquiring firm offers a fixed price for the stock. The takeover is almost certain to occur shortly before the option expires. When it does, investors will tender their shares and receive the cash offer. Hence, the stock price is essentially frozen for the remainder of the life of the stock. Explain how the nature of in-the- money and out-of-the-money European calls and puts would change.

Reference no: EM13926052

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