Say σ = 30%, r = 8%, and δ = 0, what is the price of...

Say σ = 30%, r = 8%, and δ = 0, what is the price of an at-the-money put option, as fraction of stock price? Assume the put option expires in 1 year.

Expert Solution

Using put call parity
P=C+Xe^(-rt)-S

ATM option means
X=S

Put as fraction of stock price P/S=C/S+e^(-rt)-1=N(d1)+e^(-rt)*N(d2)+e^(-rt)-1=N((8%+(0.3^2/2))/0.3)+e^(-8%*1)*N((8%-(0.3^2/2))/0.3)+e^(-8%*1)-1=0.080229472

jeff jeffy answered 2 years ago

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