What are the transactions to be done today

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Questions -

a. What is the price of a European put option on a non-dividend-paying stock when the stock price is $69, the strike price is $70, the risk-free interest rate is 5% per annum, the historical volatility is 35% per annum, and the time to maturity is six months?

b. WITHOUT using the B-S formula, please calculate the call option price on the same stock with $70 strike price and a time to maturity of 6 months? Explain how and show the process.

c. If this put option is actually sold for $8, is there an arbitrage opportunity? What are the transactions to be done today? How much is the immediate profit? What are the possible transactions to be done at maturity?

d. For the same put option, what is the implied volatility reflected by a market price of $8?

Reference no: EM132968588

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