In: Finance
What is a lower bound for the price of a two-month European put option on a non-dividend-paying stock when the stock price is $21, the strike price is $24, and the continuously compounded risk-free interest rate is 8% per annum
Lower Bound of the put option =
P >= Strike Price * e^(-r*t) - Stock Price
t = 2 / 12 = 0.16666666666
r = 0.08
>= 24 * e^(-0.08*0.16666666666) - 21
>= 24 * e^(-0.08*0.16666666666) - 21
>= (24 * 0.98675516181) - 21
>= 23.68 - 21
>= 2.68