Let S = $100, K = $95, σ = 30%, r = 8%, T = 1, and δ = 0. Let u = 1.3, d = 0.8, and n = 2. Construct the binomial tree for a European put option. At each node provide the premium, ∆ and B.
Answer to relevant QuestionsRepeat the option price calculation in the previous question for stock prices of $80, $90, $110, $120, and $130, keeping everything else fixed. What happens to the initial put _ as the stock price increases? Repeat the previous problem for n = 50. What is the risk-neutral probability that S1< $80? S1> $120? We sawin Section 10.1 that the undiscounted risk-neutral expected stock price equals the forward price. We will verify this ...Repeat Problem 11.1, only assume that r = 0.08 and δ = 0.Will early exercise ever occur? Why? In Problem 11.1 Consider a one-period binomial model with h = 1, where S = $100, r = 0, σ = 30%, and δ = 0.08. Compute American ..."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 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 ...
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