Question: Let S 40 K 45 0 30
Let S = $40, K = $45, σ = 0.30, r = 0.08, and δ = 0. Compute the value of knockout calls with a barrier of $60 and times to expiration of 1 month, 2 months, and so on, up to 1 year. As you increase time to expiration, what happens to the price of the knock-out call? What happens to the price of the knock-out call relative to the price of an otherwise identical standard call?
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