(a) Work the Bermuda option Problem 5 of Chapter 4 assuming prices follow a jump diffusion with...
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(a) Work the Bermuda option Problem 5 of Chapter 4 assuming prices follow a jump diffusion with normal sized jumps. Be sure to report your jump parameters.
(b) Repeat (a) using lognormal sized jumps.
Data given in problem 5
Price a 90 day 100 strike Bermudian option with 15 day early exercise periods. Assume r = 1 % and σ = 20 %. Use the binomial tree solution method. Plot the price of the option versus originating stock price. Compare the graph with that of its European counterpart.
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