Consider a perpetual put option with S = $50, K = $60, r = 0.06, =
Question:
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 same. What happens to the price and exercise barrier? Why?
c. Suppose r = 0.07 with all other inputs the same. What happens to the price and exercise barrier? Why?
d. Suppose σ = 50% with all other inputs the same. What happens to the price and exercise barrier? Why?
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a The price of the perpetual put option is 2307 It should be exercised when the stock price reaches ...View the full answer
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