Previously, the emphasis was on obtaining information from clients. In this chapter, the emphasis was on preparing witnesses for trial. To properly prepare witnesses for trial, the paralegal needs to….
Verify that, when substituting the volatility parameter with the closed-form formula for yields
Closed-form formulas. The three questions are independent.
(a) Based on the lognormal model, what is the value of a 1-month European call on Kroger Co. struck at $25? Kroger Co. currently trades at $24, no dividend is scheduled, the risk-free rate is 1% p.a., and volatility is 20%.
(b) Based on the lognormal model, what is the value today of a European call and a European put struck at $50 and maturing in 6 months? The underlying asset is a stock with spot price $50, no dividend, and 30% volatility. The risk-free rate is 10% per annum.
(c) Verify that, when substituting the volatility parameter with the closed-form formula for yields