Reference no: EM132622861
Problem 1:
The following information is given about options on the stock of a certain company:
S0 = $80, X =$70, r =10% per year (continuously compounded), T = 9 months, = 0.30
No dividends are expected. One option contract is for 100 shares of the stock. All notations are used in the same way as in the Black-Scholes-Merton Model.
1. What is the European call option price and European put option price, according to the Black-Scholes model?
2. What is the cost of buying a protective put?
3. What is the cost of writing a covered call?
4. What will be the payoff and profit of the protective put if the stock price on maturity is $60, $70, $76, $80, $86?
5. What will be the payoff and profit of the covered call if the stock price on maturity is $60, $70, $76, $80, $86?
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