= Assume that the price S of a risky asset follows a binomial model with S(0)...
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= Assume that the price S of a risky asset follows a binomial model with S(0) = $100, u = 10% and d -10%. The asset pays a dividend of $5 on the odd times, i.e., 1, 3, 5.... In this market, the risk-free rate is 5% (zero). The time horizon will be = 3. (a) (3 Points) Determine the ex-dividend stock price tree. Hint: It may be helpful to also include the "cum dividend" (b) (5 Points) Price a European call with strike price K = 87 and expiry date N value at every node). = 3 (calculate the (c) (5 Points) Price a European with strike price 87 and expiry date N = 3 (calculate the value at every node). (d) (3 Points) Verify that the Put-Call Parity holds. (e) (12 Points) Price an American call with strike price K = 87 and expiry date N = 3. (f) (12 Points) Price an American put with strike price K = 87 and expiry date N = 3. = Assume that the price S of a risky asset follows a binomial model with S(0) = $100, u = 10% and d -10%. The asset pays a dividend of $5 on the odd times, i.e., 1, 3, 5.... In this market, the risk-free rate is 5% (zero). The time horizon will be = 3. (a) (3 Points) Determine the ex-dividend stock price tree. Hint: It may be helpful to also include the "cum dividend" (b) (5 Points) Price a European call with strike price K = 87 and expiry date N value at every node). = 3 (calculate the (c) (5 Points) Price a European with strike price 87 and expiry date N = 3 (calculate the value at every node). (d) (3 Points) Verify that the Put-Call Parity holds. (e) (12 Points) Price an American call with strike price K = 87 and expiry date N = 3. (f) (12 Points) Price an American put with strike price K = 87 and expiry date N = 3.
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Youve provided an excellent breakdown of the steps needed to solve the problems related to bond duration DV01 and zerocoupon bonds Heres a continuatio... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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