Let S = $120, K = $100, = 30%, r = 0, and = 0.08.
Question:
a. Compute the Black-Scholes call price for 1 year to maturity and for a variety of very long times to maturity. What happens to the price as T → ∞?
b. Set r = 0.001. Repeat (a). Now what happens? What accounts for the difference? Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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a T Call Price 1 186705 2 181410 5 151037 10 101571 50 02938 100 00034 ...View the full answer
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