Homework Answers
Lower bound for the price of European call option for a Non dividend paying stock = Stock price - Present value of Strike price using continuous compounding
that is , S0 - K*e^(-rt)
Here,
S0 = Stock price = $120
K = Strike price = $100
r = risk free rate = 10% (annual)
t = time to expiry = 2 days
Hence, 120 - 100*e^(0.1*2/360) = $ 20.055
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