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 put _ as the stock price increases?
Answer to relevant QuestionsConsider a one-period binomial model with h = 1, where S = $100, r = 0, σ = 30%, and δ = 0.08. Compute American call option prices for K = $70, $80, $90, and $100. a. At which strike(s) does early exercise occur? b. Use ...We saw in Section 10.1 that the undiscounted risk-neutral expected stock price equals the forward price. We will verify this using the binomial tree in Figure 11.4. a. Using S = $100, r = 0.08, and δ = 0, what are the ...Consider a one-period binomial model with h = 1, where S = $100, r = 0.08, σ = 30%, and δ = 0. Compute American put option prices for K = $100, $110,$120, and $130. a. At which strike(s) does early exercise occur? b. Use ...In the absence of an explicit formula, we can estimate the change in the option price due to a change in an input-such as σ-by computing the following for a small value of : a. What is the logic behind this calculation? Why ...Using the BinomCall and BinomPut functions, compute the binomial approximations for the options in Examples 12.1 and 12.2. Be sure to compute prices for n = 8, 9, 10, 11, and 12. What do you observe about the behavior of the ...
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