Explanation:
Call price = $50 \times 0.381521 - `60` / e^{0.06 \times 0.75} \times 0.272723 = \`3.43`$
Put price using put-call parity = $3.43 + `60` / e^{0.06 \times 0.75} - 50 = \`10.79`$
Because we are told that the options are American, they must be at least as valuable as their European counterparts. So, the American put option must be worth more than $10.79.
(Book 4, Module 61.2, LO 61.d)
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Question 94
A portfolio manager is attempting to value American call and put options on a nondividend paying share of Axis PLC using the Black-Scholes-Merton option pricing model. Axis is currently trading at $50 per share, and the strike of both options is $60. The risk-free rate is 6%. The options expire nine months from today. N(d1) is 0.381521 and N(d2) is 0.272723. What are the possible values of the two options?
A
American Call Option: 3.43 | American Put Option: 10.70
B
American Call Option: 3.43 | American Put Option: 10.80
C
American Call Option: 3.33 | American Put Option: 10.70
D
American Call Option: 3.33 | American Put Option: 10.80
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