
Financial Risk Manager Part 1
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Given the context of American options, let's delve into their specifics. Both an American call option and an American put option are set to expire in 3 months. They are based on a stock currently valued at USD 40, which notably does not pay dividends. The strike price for these options is USD 35. Additionally, the prevailing risk-free rate is 1.5%. With this information, what are the minimum and maximum possible differences in the prices of these two options?
Given the context of American options, let's delve into their specifics. Both an American call option and an American put option are set to expire in 3 months. They are based on a stock currently valued at USD 40, which notably does not pay dividends. The strike price for these options is USD 35. Additionally, the prevailing risk-free rate is 1.5%. With this information, what are the minimum and maximum possible differences in the prices of these two options?
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