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Assume rf = 0 for all questions below.
Underling at 100. Annual stdev of $20. 3 months left for the option. PUT strike at 90.
1. Pricing Under Normal Distribution
1a. What is the z-score for PUT strike?
1b. What is the probability for PUT to expire in the money?
1c. What is the average z-score and average price of the underlying at expiration conditional on PUT expiring ITM?
1d. What is the average payment of the option conditional on expiring ITM?
1e. How much should the 90 strike PUT be priced at?
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