Question
Calculate the price of a six-month European put option on the spot value of the $S\&P 500$ . The six-month forward price of the index is 1,400 , the strike price is 1,450 , the risk-free rate is $5 \%$, and the volatility of the index is $15 \%$.
Step 1
- Forward price of the index (\(F\)) = 1,400 - Strike price (\(K\)) = 1,450 - Risk-free rate (\(r\)) = 5% or 0.05 - Volatility (\(\sigma\)) = 15% or 0.15 - Time to maturity (\(T\)) = 6 months = 0.5 years Show more…
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