Find the current price of a one-year, $110-strike American put option on a non-dividend-paying stock whose current price is S(0)=$100. Assume that the continuously compounded interest rate equals r=0.08. Use a two-period binomial tree with u=1.2 and d=0.8 to calculate the price of the put option.

answer

watching

120

views

For unlimited access to Homework Help, a Homework+ subscription is required.

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

Jamar FerryLv2

28 Sep 2019

Unlock all answers

Get 1 free homework help answer.

Already have an account? Log in

Related questions

Consider a 3-month put option on a stock. The current stock price is $100; and the stock pays no dividend during the next 3-month. You estimate that the stock volatility is 20% per annum. The option has a strike price of $105. Risk free interest rate is 5%. You use a 2-step CRR binomial model to price this option.

a) What is the risk neutral probability of stock price moving up in any one time step?

b) Suppose the option is a European put option. Use the binomial tree below to compute the option price.

c) Suppose the option is an American put option. Use the binomial tree below to compute the option price.

d) Suppose the option is an Asian option, where the strike price is average stock price over life of the option. Use the binomial tree below to compute the option price.

Please show calculate process.

blushlion446

Consider a non-dividend-paying stock whose current price S(0) = S is $40. After each period, there is a 60% chance that the stock price goes up by 20%. If the stock price does not go up, then it drops by 10%. A European call option and a European put option on this stock expire on the same day in 3 months at $43 strike. Current risk-free interest rate is 6% per annum, compounded continuously.

(a) Use the Black-Scholes option pricing formula to calculate the call option price after threemonths. Use Ï= lnu/(sqrt(delta t)) with u=1.20 and ât = 1/12. Use a computer algebra device to calculate N(x) for appropriate x, but you have to show manually all the components required for the formula.

marooncockroach330

Consider a 6-month American call option on a non-dividend-paying stock. The stock price is $80 and the strike price of the option is $75. The continuously compounded risk-free interest rate is 10% per year. What is the best lower bound of the option price?

a. $0

b. $1.15

c. $5.00

d. $8.66

e. $12.14

Weekly leaderboard

Home

Homework Help 3,900,000

Finance 370,000