A stock has volatility = 35% and initial price so = $15. The risk-free rate is...
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A stock has volatility = 35% and initial price so = $15. The risk-free rate is r = 3. [5] Find the BSM price of a European call maturing in T = 2 years, with strike K = $14. [10] Obtain a similar number via Monte Carlo simulation, as follows. Take n = 100 if you use Excel, and n = 1000 if you use code. Simulate n r.v. Z;~ N(0, 1), and therefore n risk-neutral terminal stock prices S = Soe(r)T+√TZ₁. The option price is a discounted risk-neutral expectation, and by the LOLN, that expectation is f(S), where f is the option payoff. Include an image of some of your code or spreadsheet with your solution. Do this a couple of times, and see how your answers change, to get a sense of their accuracy. A stock has volatility = 35% and initial price so = $15. The risk-free rate is r = 3. [5] Find the BSM price of a European call maturing in T = 2 years, with strike K = $14. [10] Obtain a similar number via Monte Carlo simulation, as follows. Take n = 100 if you use Excel, and n = 1000 if you use code. Simulate n r.v. Z;~ N(0, 1), and therefore n risk-neutral terminal stock prices S = Soe(r)T+√TZ₁. The option price is a discounted risk-neutral expectation, and by the LOLN, that expectation is f(S), where f is the option payoff. Include an image of some of your code or spreadsheet with your solution. Do this a couple of times, and see how your answers change, to get a sense of their accuracy.
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SOLUTION Using the BlackScholesMerton BSM model the price of a European call option with strike K 14 ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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