# Question

For the lookback call:

a. What is the value of a lookback call as ST approaches zero? Verify that the formula gives you the same answer.

b. Verify that at maturity the value of the call is ST − ST .

a. What is the value of a lookback call as ST approaches zero? Verify that the formula gives you the same answer.

b. Verify that at maturity the value of the call is ST − ST .

## Answer to relevant Questions

For the lookback put: a. What is the value of a lookback put if ST = 0? Verify that the formula gives you the same answer. b. Verify that at maturity the value of the put is ST − ST . Verify that equation (23.7) satisfies the appropriate boundary conditions for Pr(ST ≤ H and ST >K). Using weekly price data (constructed Wednesday toWednesday), compute historical annual volatilities for IBM, Xerox, and the S&P 500 index for 1991 through 2004. Annualize your answer by multiplying by √ 52. Also compute ...Using the base case parameters, plot the implied volatility curve you obtain for the base case against that for the case where there is a jump to zero, with the same λ. Use the same inputs as in the previous problem. Suppose that you observe a bid option price of $50 and an ask price of $50.10. a. Explain why you cannot compute an implied volatility for the bid price. b. Compute an implied ...Post your question

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