Consider a European-style put on a stock with price $42; the put has a strike price...
Consider a European-style put on a stock with price $42; the put has a strike price of $50, time-to-expiration of 300 days. Assume that there are no dividends expected for the coming year on the stock and the interest rate is 10%. The arbitrage-free upper bound for this put would be: $42.00 $46.00 $46.23 $47.00 $50.00
Homework Answers
Upper Bond of European-style put can be computed with following equation:
where,
r = risk free rate
t = maturity
putting the values
by solving,
Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.
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Consider a European-style put on a stock with price $42; the put
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