Current stock price for XYZ = $50 Interest rate = 3% Dividend rate = 0% The graph shows the price profile (option price vs strike, Black-Scholes model) of 6-month options on XYZ, for two different implied volatilities (IVs): 22% and 40%. 22% is the implied volatility where the $50-strike put is priced and 40% is the implied volatility where the $30 strike put was priced a) Can you locate on the graph the price ($2.74) of the $50-strike put (priced at 22% implied volatility) and the price ($0.14) of the $30-strike put (priced at 40% implied volatility)? b) At what value of the strike is the price difference (for the two different implied volatilities) the biggest? Any thoughts on this?
Current stock price for XYZ = $50 Interest rate = 3% Dividend rate = 0% The graph shows the price profile (option price vs strike, Black-Scholes model) of 6-month options on XYZ, for two different implied volatilities (IVs): 22% and 40%. 22% is the implied volatility where the $50-strike put is priced and 40% is the implied volatility where the $30 strike put was priced a) Can you locate on the graph the price ($2.74) of the $50-strike put (priced at 22% implied volatility) and the price ($0.14) of the $30-strike put (priced at 40% implied volatility)? b) At what value of the strike is the price difference (for the two different implied volatilities) the biggest? Any thoughts on this?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:$18
$16
$14
$12
$10
$8
$6
a
$4
$2
✔
PUT PRICE (6-MONTH EXPIRY) vs STRIKE
$0
30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65
PUT PRICE @ 22% IV - PUT PRICE @ 40% IV
Current stock price for XYZ = $50
Interest rate = 3%
Dividend rate = 0%
The graph shows the price profile (option price vs strike, Black-Scholes model) of 6-month
options on XYZ, for two different implied volatilities (IVs): 22% and 40%. 22% is the implied
volatility where the $50-strike put is priced and 40% is the implied volatility where the $30
strike put was priced
a) Can you locate on the graph the price ($2.74) of the $50-strike put (priced at 22%
implied volatility) and the price ($0.14) of the $30-strike put (priced at 40% implied
volatility)?
b) At what value of the strike is the price difference (for the two different implied
volatilities) the biggest? Any thoughts on this?
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