Compute the state prices, In exercise, compute the state

Compute the state prices

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Question: In exercise, compute the state prices and , and use these prices to calculate the value today of a one-year put option on the stock with exercise price $30. Show that put-call parity holds: That is, using your answer from this problem and the previous problem, show that:

Call price+ X/1+r=Stock price today+Put price

Exercise: A stock selling for $25 today will, in 1 year, be worth either $35 or $20. If the interest rate is 8%, what is the value today of a one-year call option on the stock with exercise price $30? Use the simultaneous equation approach of price the option.

Reference no: EM131453771

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