Analytical option pricing model


The market index currently stands at 650 and has a volatility of 30 percent per annum. The risk- free rate of interest is 6 percent per annum and the index provides a divided yield of 3 percent per annum. Calculate the value of a three-month European put on that index with an exercise price of 650, using Merton's index option pricing formula.

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Finance Basics: Analytical option pricing model
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