The following are prices of call options traded on Pineapple inc., which pays no dividends Call Options Exercise price = $200 Exercise price = $205 one month $4.50 $3.00 three month $6.25 $5.00 six month $9.00 $7.50 The stock is trading at $202 and the annualized riskless rate is 2%. The standard deviation in ln(stock prices) (Based on historical data) is 15%. What is the implied standard deviation in the six month call with a strike price of $200?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
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The following are prices of call options traded on Pineapple inc., which pays no dividends
| Call Options | ||
| Exercise price = $200 | Exercise price = $205 | |
| one month | $4.50 | $3.00 |
| three month | $6.25 | $5.00 |
| six month | $9.00 | $7.50 |
The stock is trading at $202 and the annualized riskless rate is 2%. The standard deviation in ln(stock prices) (Based on historical data) is 15%.
What is the implied standard deviation in the six month call with a strike price of $200?
Please show solution on excel or with formula. Thanks
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