Business: A European call and a european put on a stock have the same strike price and time to maturity. At 10:00 am on a certain day, the price of the call is $3 and the price of the put is $4 . At 10:01 am news reaches the market that has no effect on the stock price or interest rates, but increases volatilities. As a result the price of the call changes to $3.5? Which of the following is correct and show your calculations: a. The put price increases to 4.5 b. The put price decreases to 3.5 c. The put price

The answer for this question is true...

A European call and a european put on a stock have

Netnee

22.01.2022

The put price increases to $4.5

Option A is correct (The put price increases to 4.5)

Explanation:

Since the price of call changes from $3 to $3.5, it means the price of call is increased by:

Increase in price of call=$3.5-$3

Increase in price of call=$0.5

From the put-call Parity, the amount of increase in put is same as the amount of increase in call.

The put price increases to $4+$0.5

The put price increases to $4.5

Option A is correct (The put price increases to 4.5)

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