Question: Repeat the option price calculation in the previous question for
Repeat 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 option _ as the stock price increases?
Answer to relevant QuestionsLet 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. Let S = $100, σ = 0.30, r = 0.08, t = 1, and δ = 0. Using equation (11.12) to compute the probability of reaching a terminal node and Suidn−i to compute the price at that node, plot the risk-neutral distribution of ...Repeat Problem 11.1, only assume that r = 0.08. What is the greatest strike price at which early exercise will occur? What condition related to put-call parity is satisfied at this strike price? In Problem 11.1 Consider a ...Use a spreadsheet to verify the option prices in Examples 12.1 and 12.2. Consider a perpetual call 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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