Compute implied volatilities of both options on both dates

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Reference no: EM131014388

You are given the following information on two European call options written on stock XYZ at a strike of 150.

maturity 11/18/2012

Price

maturity 1/18/2014

Price

XYZ price

4/11/2012

12.45

20.13

153.10

4/12/2012

9.62

17.82

147.55

Assume an annual rate of interest of 1% and an annual dividend rate of 2%. Both rates are continuously compounded.

a) Compute the implied volatilities of both options on both dates.

b) Create a P&L explanation for these two options. A P&L explanation is an explanation of the change in the option value between the two days. The change in value should be expressed in terms of delta, gamma, vega and time decay.

c) Present the main differences between the P&L explanations of the two options.

Reference no: EM131014388

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