Assume that S $45, K $40, r 0 05, 0 02, and 0 30 Using the up rebate formula (equation (23 21)), find the value of H that maximizes (H K) UR(S, , r, T, ), for T 1, 10, 100, 1000, and 10,000 Compare both H and (H K) UR to the perpetual option solution Explain the differences

Question: Assume that S = $45, K = $40, r = 0.05, = 0.02, and = 0.30. Using the up rebate formula (equation (23.21)),

Assume that S = $45, K = $40, r = 0.05, δ = 0.02, and σ = 0.30. Using the up rebate formula (equation (23.21)), find the value of H that maximizes (H − K) × UR(S, σ, r, T, δ), for T = 1, 10, 100, 1000, and 10,000. Compare both H and (H − K) × UR to the perpetual option solution. Explain the differences.

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