Compute the 1-year forward price using the 50-step binomial tree in Problem 11.13.
Answer to relevant QuestionsSuppose S = $100, K = $95, r = 8% (continuously compounded), t = 1, σ = 30%, and δ = 5%. Explicitly construct an eight-period binomial tree using the Cox-Ross Rubinstein expressions for u and d: Compute the prices of ...Consider a one-period binomial model with h = 1, where S = $100, r = 0.08, σ = 30%, and δ = 0. Compute American put option prices for K = $100, $110,$120, and $130. a. At which strike(s) does early exercise occur? b. Use ..."Time decay is greatest for an option close to expiration." Use the spreadsheet functions to evaluate this statement. Consider both the dollar change in the option value and the percentage change in the option value, and ...Consider a perpetual call option with S = $50, K = $60, r = 0.06, σ = 0.40, and δ = 0.03. a. What is the price of the option and at what stock price should it be exercised? b. Suppose δ = 0.04 with all other inputs the ...Suppose S = $100, K = $95, σ = 30%, r = 0.08, δ = 0.03, and T = 0.75. a. Compute the Black-Scholes price of a call. b. Compute the Black-Scholes price of a call for which S = $100 × e −0.03×0.75, K = $95 × ...
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