Question: Compute the prices of European and American calls and puts
Compute the prices of European and American calls and puts.
Answer to relevant QuestionsSuppose that S = $50, K = $45, σ = 0.30, r = 0.08, and t = 1. The stock will pay a $4 dividend in exactly 3 months. Compute the price of European and American call options using a four-step binomial tree. Repeat Problem 11.4, only set r = 0 and δ = 0.08. What is the lowest strike price (if there is one) at which early exercise will occur? If early exercise never occurs, explain why not. For the following problems, note that ...Suppose S = $100, K = $95, σ = 30%, r = 0.08, δ = 0.03, and T = 0.75. Using the technique in the previous problem, compute the Greek measure corresponding to a change in the dividend yield. What is the predicted effect of ...Using the BinomCall and BinomPut functions, compute the binomial approximations for the options in Examples 12.1 and 12.2. Be sure to compute prices for n = 8, 9, 10, 11, and 12. What do you observe about the behavior of the ...Assume K = $40, σ = 30%, r = 0.08, T = 0.5, and the stock is to pay a single dividend of $2 tomorrow, with no dividends thereafter. a. Suppose S = $50. What is the price of a European call option? Consider an otherwise ...
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