A stock is governed by a geometric Brownian motion with initial price of $60, an interest...
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A stock is governed by a geometric Brownian motion with initial price of $60, an interest rate of 1%, a volatility of 40%. You monitor the stock price each week for twenty-six weeks (one half of a year). Compute the price of a down-and-in put option with a strike price of $60 and a barrier of $55 with an absolute error of $ 0.01 using a) IID sampling, b) IID sampling with a control variate: the European call option, c) IID sampling with a control variate: the European put option, and d) Integration lattice sampling. Compare the performance of these three methods and attempt to explain intuitively why certain methods perform better than others. A stock is governed by a geometric Brownian motion with initial price of $60, an interest rate of 1%, a volatility of 40%. You monitor the stock price each week for twenty-six weeks (one half of a year). Compute the price of a down-and-in put option with a strike price of $60 and a barrier of $55 with an absolute error of $ 0.01 using a) IID sampling, b) IID sampling with a control variate: the European call option, c) IID sampling with a control variate: the European put option, and d) Integration lattice sampling. Compare the performance of these three methods and attempt to explain intuitively why certain methods perform better than others.
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DownandIn Put Option Pricing with Different Methods This scenario involves pricing a downandin put option with specific parameters Well explore four methods and analyze their performance a IID Samplin... View the full answer
Related Book For
Statistics For Business And Economics
ISBN: 9780321826237
12th Edition
Authors: James T. McClave, P. George Benson, Terry T Sincich
Posted Date:
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