Show that the approximate value of the American commodity put option based on the quadratic approximation method is given by S Explain why the formula holds for all values of b Show that P(S, T) P(S, T) S 91 91 1 eh N( d(S )) ( ) S S ...

The Answer is in the image, click to view ...

Show that the approximate value of the American commodity put option based on the quadratic approximation method

Question:

Show that the approximate value of the American commodity put option based on the quadratic approximation method is given by

P(S, T) = P(S, T) S* 91 91 [1-eh-N(-d(S*))](/) S*.">

Explain why the formula holds for all values of b.

Show that

and P(S, T) = P(S, T)+c KS, as (S*, t) = e(br)t N(-d (S*)).

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For answer-question

Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

See More Books

Question Posted: Dec 05, 2023 01:13 AM

See More Questions

KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
By considering the corresponding integral representation of the early exercise premium of an American commodity option with cost of carry b, show that (a) When b r, r is the riskless interest rate,...
The scene is a conference room on the 10th floor of an office building on Wall Street, occupied by Anthes Enterprises, a small, rapidly growing manufacturer of electronic trading systems for...
Write a program that takes an integer command-line argument n and creates an n-by-n boolean array a[][] such that a[i][j] is true if i and j are relatively prime (have no common factors), and false...
GAINS AND LOSSES ON THE SALE OF LONG-TERM ASSETS The income statement for Hubbard's Professional Edge Tennis Camp follows. Assume that all revenues and expenses were for cash and that land was sold...
The JustOneMore Company produces and sells organic plain potato chips. The one-pound family size bag of chips has two direct materials potatoes and packaging. JustOneMore is preparing budgets for...
Stone Brewing Co. is a San Diego brewer that has sold its beers for over two decades. Stone has maintained its trademark and brand from the beginning, registering the STONE mark in 1998. Stone has...
Len Kumar started his own consulting firm. Kumar Consulting on June 1, 2017 the trial balance at June 30 is as follows. In addition to those accounts listed on the trial balance, the chart of...
TheOnlyWizKid, Montclair State University Download and connect to the raw data Market Caps of S_P500 Companies 2008-2015.xls on Canvas>Files> Tableau Data Files using Tableau. The Excel file lists...
Show that where p () is defined in (5.4.2). To prove the results in (5.4.6a,b,c), it suffices to consider the sign behavior of Consider the following two cases (Dai, Kwok and Wu, 2004). (a) For r ...
The approximate equation for f in the quadratic approximation method becomes undefined when K() = 1 e r = 0, which corresponds to r = 0. Following a similar derivation procedure as in the quadratic...
Steam is to be condensed on the shell side of a heat exchanger at 150F. Cooling water enters the tubes at 60F at a rate of 44 lbm/s and leaves at 73F. Assuming the heat exchanger to be...
Your black shirt feels hot in the sunlight. Why does this happen?
Red Royal Packaging stock is expected to pay a dividend of 3.94 dollars in 1 year and a dividend of 2.8 dollars in 2 years. The stock is expected to be priced at 98.73 dollars in 1 year and at 108.76...
What can you conclude regarding the relationship between bonds rating and the rate of the return bondholders will receive if they hold the bonds until the maturity date (YTM)?
A stock is expected to pay 0.50, 0.55 and 0.60 euros per share in the next 3 years. Then, a growth phase of 5 years at 5% is expected. Finally, the future growth of the company is expected to be 2%...
ABC Company is 100% owned by Hadley . On January 1 of the current year, ABC makes a loan of $24990 to HADLEY . The loan carries interest at the rate prescribed within the tax regulations. Hadley pays...
Use the following data for parts (a) through (f). a. Determine the equation of the least squares regression line to predict y by x. b. Using the x values, solve for the predicted values of y and the...
What does non-recourse financing mean?
How did information technology affect decision making at Team USA and the Oakland Athletics? What kinds of decisions changed as the result of using computers?
How much was technology responsible for Team USAs Americas Cup victory?
How much does baseball rely on sabermetrics? Explain your answer.
Let n and m be positive integers with n m 1. (a) (9 points) How many different m-word sentences can be constructed using an al- phabet of n letters where each of the letters appears exactly once? A...
As part of a survey, 15 adults were asked, "How many hours did you spend at your job last week?" The results are shown in the stem-and-leaf display below. Use the display to answer the questions that...
- Consider an asymmetric Cournot duopoly game, where the two firms have different costs of production. Firm 1 selects quantity 91 at a pro- duction cost of 2q. Firm 2 selects quantity 92 and pays the...

Show that the approximate value of the American commodity put option based on the quadratic approximation method

Question:

P(S, T) = P(S, T) – S* 91 91 [1-eh-N(-d₁(S*))](/)". S> S*.

Step by Step Answer:

Mathematical Models Of Financial Derivative

Students also viewed these Business questions

P(S, T) = P(S, T) – S* 91 91 [1-eh-N(-d₁(S))](/)". S> S.