Suppose that a stock index is currently 900. The dividend yield is 2%, the risk-free rate is

Question:

Suppose that a stock index is currently 900. The yield is 2%, the risk-free rate is 5%, and the volatility is 40%. Use the results in the Technical Note 27 to calculate the value of a one-year average price call where the is 900 and the index level is observed at the end of each quarter for the purposes of the averaging. Compare this with the price calculated by DerivaGem for a one-year average price option where the price is observed continuously. Provide an intuitive explanation for any differences between the prices.
Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...