Assume the Black-Scholes framework. For a stock which pays dividends continuously at a rate proportional to its
Question:
Assume the Black-Scholes framework. For a stock which pays dividends continuously at a rate proportional to its price, you are given:
(i) The probability that an 8-month European put option on the stock will be exercised is 0.512.
(ii) The expected 8-month stock price is 10.134.
(iii) The expected 8-month stock price, given that the put option in (i) expires in-the-money, is 8.483.
Determine the 98% lognormal prediction interval for the 8-month stock price.
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From i ii and iii we have 10134 i Nd 0512 ii S0ea8T iii S 0ea...View the full answer
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Tanzina Haque
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