3. For a stock, you are given: (i) The stock's prices follow a lognormal model. (ii)...
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3. For a stock, you are given: (i) The stock's prices follow a lognormal model. (ii) The stock's current price is 43.02. (iii) The stock's continuously compounded annual return is 0.15. (iv) =0.3. (v) The stock pays continuous dividends proportional to its price at an annual rate of 0.03. (vi) The continuously compounded risk-free interest rate is 0.05. A 1-year European put option on the stock has strike price 45. Simulate the stock's price using the following random numbers uniform on [0,1]): 0.2296 0.8212 0.4483 0.6103 Using these numbers and the four trials of the inversion method, one number per trial, calculate the ex- pected present value of the option. 3. For a stock, you are given: (i) The stock's prices follow a lognormal model. (ii) The stock's current price is 43.02. (iii) The stock's continuously compounded annual return is 0.15. (iv) =0.3. (v) The stock pays continuous dividends proportional to its price at an annual rate of 0.03. (vi) The continuously compounded risk-free interest rate is 0.05. A 1-year European put option on the stock has strike price 45. Simulate the stock's price using the following random numbers uniform on [0,1]): 0.2296 0.8212 0.4483 0.6103 Using these numbers and the four trials of the inversion method, one number per trial, calculate the ex- pected present value of the option.
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