Repeat the previous problem assuming that the stock pays a continuous dividend of 8% per year (continuously compounded). Calculate the prices of the American and European puts and calls. Which options are early-exercised?
Answer to relevant QuestionsLet S = $40, K = $40, r = 8% (continuously compounded), σ = 30%, δ = 0, T = 0.5 year, and n = 2. a. Construct the binomial tree for the stock. What are u and d? b. Show that the call price is $4.110. c. Compute the prices ...An option has a gold futures contract as the underlying asset. The current 1-year gold futures price is $300/oz, the strike price is $290, the risk-free rate is 6%, volatility is 10%, and time to expiration is 1 year. ...Obtain at least 5 years' worth of daily or weekly stock price data for a stock of your choice. 1. Compute annual volatility using all the data. 2. Compute annual volatility for each calendar year in your data. How does ...Repeat the previous problem, except that for each strike price, compute the expected return on the option for times to expiration of 3 months, 6 months, 1 year, and 2 years. What effect does time to maturity have on the ...Repeat Problem 11.1, only assume that r = 0.08 and δ = 0.Will early exercise ever occur? Why? In Problem 11.1 Consider a one-period binomial model with h = 1, where S = $100, r = 0, σ = 30%, and δ = 0.08. Compute American ...
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