What is the price of call option with same exercise price

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1. A put option that expires in six months with an exercise price of $65 sells for $4.89. The stock is currently priced at $61, and the risk-free rate is 3.6 percent per year compounded continuously. What is the price of a call option with the same exercise price?

2. Suppose all options traders decide to switch from Black-Scholes to another model that makes different assumptions about the behavior of asset prices. What effect do you think this would have on (a) the pricing of standard options and (b) the hedging of standard options?

3. Suppose that a financial institution uses a imprecise model for pricing and hedging a particular type of structured product Discuss how, if at all, it is likely to realize its mistake.

Reference no: EM132046150

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