Repeat parts a – d of the previous problem for a six-month European put option with exercise price $40. Again, assume a current stock price of $35, a risk-free rate of 5%, and an annual volatility of 40%.
Data from Previous Problem:
a. Consider a six-month European call option with exercise price $40. Assume a current stock price of $35, a risk-free rate of 5%, and an annual volatility of 40%. Determine the price of the call option.
b. Use a data table to show how a change in volatility changes the value of the option. Give an intuitive explanation for your results.
c. Use a data table to show how a change in today’s stock price changes the option’s value. Give an intuitive explanation for your results.
d. Use a data table to show how a change in the option’s duration changes the option’s value. Give an intuitive explanation for your results.
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