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QUESTION
The Analytical Option Pricing Model The market index currently stands at 650 and has a volatility of 30 percent per annum.
The Analytical Option Pricing ModelThe market index currently stands at 650 and has a volatility of 30 percent per annum. The risk- free rate of interest is 6 percent per annum and the index provides a divided yield of 3 percent per annum. Calculate the value of a three-month European put on that index with an exercise price of 650, using Merton’s index option pricing formula.
The Analytical Option Pricing Model[2] Here, log denotes the natural logarithm, and:s = the price of the underlying stockx = the strike pricer = the continuously compounded risk free interest...