Consider an American call option when the stock price is $18, the exercise price is $20, the

Question:

Consider an American call option when the stock price is $18, the exercise price is $20, the time to is six months, the volatility is 30% per annum, and the risk-free interest rate is 10% per annum. Two equal dividends of 40 cents are expected during the life of the option, with ex-dividend dates at the end of two months and five months. Use Black’s approximation and the DerivaGem software to value the option. Suppose now that the is on each ex-dividend date. Use the results in the Appendix to determine how high can be without the American option being exercised early. 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... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...