Question: Repeat Problem 17 6 only assume that after the stock is
Repeat Problem 17.6, only assume that after the stock is excavated, the land has an alternative use and can be sold for $30m.
Answer to relevant QuestionsConsider the widget investment problem of Section 17.1 with the following modification. The expected growth rate of the widget price is zero. (This means there is no reason to consider project delay.) Each period, the widget ...Let KT = S0erT. Compute Pr(St KT ) for a variety of T s from 0.25 to 25 years. How do the probabilities behave? How do you reconcile your answer with the fact that both call and put prices increase with time? Suppose you observe the following month-end stock prices for stocks A and B: For each stock: a. Compute the mean monthly continuously compounded return. What is the annual return? b. Compute the mean monthly standard ...Repeat the previous problem, only assume that the options trader purchases 1000 1-year at-the-money straddles. Suppose that ln(S) and ln(Q) have correlation ρ =−0.3 and that S0 = $100, Q0 =$100, r = 0.06, σS = 0.4, and σQ = 0.2. Neither stock pays dividends. Use Monte Carlo to find the price today of claims that pay the ...
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