# Question: Consider a perpetual put option with S 50 K

Consider a perpetual put 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 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?

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?

## Relevant Questions

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 ...The exchange rate is ¥95/=C, the yen-denominated interest rate is 1.5%, the eurodenominated interest rate is 3.5%, and the exchange rate volatility is 10%. a. What is the price of a 90-strike yen-denominated euro put with 6 ...Repeat Problem 13.9 for a 91-day 40-strike put. You have purchased a 40-strike call with 91 days to expiration. You wish to deltahedge, but you are also concerned about changes in volatility; thus, you want to vega-hedge your position as well. a. Compute and graph the ...Consider a 40-strike call with 91 days to expiration. Graph the results from the following calculations. a. Compute the actual price with 90 days to expiration at $1 intervals from $30 to $50. b. Compute the estimated price ...Post your question