7A, asks about profit if share price doubled…shouldn’t one add interest costs to the equation…the actual amount is very small for one month on 1 option but still…
DDL24 Wrote: ------------------------------------------------------- > 7A, asks about profit if share price > doubled…shouldn’t one add interest costs to the > equation…the actual amount is very small for one > month on 1 option but still… Interest cost is implied in the option via theta. You would have to make the assumption that the option pricing model was incorrect. I wouldn’t do that on the exam.