# Question

Using the BinomCall and BinomPut functions, compute the binomial approximations for the options in Examples 12.1 and 12.2. Be sure to compute prices for

n = 8, 9, 10, 11, and 12. What do you observe about the behavior of the binomial approximation?

n = 8, 9, 10, 11, and 12. What do you observe about the behavior of the binomial approximation?

## Answer to relevant Questions

Let S = $100, K = $90, σ = 30%, r = 8%, δ = 5%, and T = 1. a. What is the Black-Scholes call price? b. Now price a put where S = $90, K = $100, σ = 30%, r = 5%, δ = 8%, and T = 1. c. What is the link between your answers ...Suppose XYZ is a non-dividend-paying stock. Suppose S = $100, σ = 40%, δ = 0, and r = 0.06. a. What is the price of a 105-strike call option with 1 year to expiration? b. What is the 1-year forward price for the stock? c. ...Repeat Problem 13.10 for a 365-day 40-strike put. Suppose you sell a 40-strike put with 91 days to expiration. What is delta? If the option is on 100 shares, what investment is required for a delta-hedged portfolio? What is your overnight profit if the stock price ...Examine the prices of up-and-out puts with strikes of $0.9 and $1.0 in Table 14.3. With barriers of $1 and $1.05, the 0.90-strike up-and-outs appear to have the same premium as the ordinary put. However, with a strike of 1.0 ...Post your question

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