Binomial Model – Suppose the stock price can go up 15% or down 13% over the next year. You own a 1 year put on the stock. The interest rate is 10% and the stock price is $60.
What exercise price leaves you indifferent between holding the put or exercising it now
How does this break-even exercise price change if the interest rate is increased?
Black-Scholes Model – Use the Black-Scholes Model to value the following options:
A call option written on a stock selling at $60/share with a $60 exercise price. The stock’s standard deviation is 6% per month. The option matures in 3 months. The risk free interest rate is 1% per month.
A put option written on the same stock at the same time, with the same exercise price, and expiration date.