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Estimate the price of the option

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Reference no: EM133055850

Suppose the price of a stock is $80. Consider a European put on the stock, expiration 10 months, riskless rate 10% per year compounded continuously, strike price $75, annual volatility 26%. The company promised to pay a dividend of $2 after 3 months and again after 6 months. Use the Black-Scholes formula and the adjusted stock price without dividends to simply estimate the price of the option. Assume each month is 1/ 12 of a year.

Reference no: EM133055850

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