A stock index is currently 2,500. Its log-return volatility is 18% per annum. The risk-free rate...
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A stock index is currently 2,500. Its log-return volatility is 18% per annum. The risk-free rate is 8% per annum with continuously compounding and the dividend yield on the index is 2% per annum with continuous compounding. For convenience, let's assume that the value of index represents the dollar value. (*Use Excel to find the answers.) a) Calculate u, d, and p when a three-month time step is used. b) Let's use the values of u, d, and p calculated in a) and consider a two-step binomial tree model. What is the value of a six-month European put option written on the index with a strike price of 2.600. c) Let's use the values of u, d, and p calculated in 'a)' and consider a two-step binomial tree model. What is the value of a six-month American put option written on the index with a strike price of 2,600. A stock index is currently 2,500. Its log-return volatility is 18% per annum. The risk-free rate is 8% per annum with continuously compounding and the dividend yield on the index is 2% per annum with continuous compounding. For convenience, let's assume that the value of index represents the dollar value. (*Use Excel to find the answers.) a) Calculate u, d, and p when a three-month time step is used. b) Let's use the values of u, d, and p calculated in a) and consider a two-step binomial tree model. What is the value of a six-month European put option written on the index with a strike price of 2.600. c) Let's use the values of u, d, and p calculated in 'a)' and consider a two-step binomial tree model. What is the value of a six-month American put option written on the index with a strike price of 2,600.
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Related Book For
College Physics
ISBN: 978-0495113690
7th Edition
Authors: Raymond A. Serway, Jerry S. Faughn, Chris Vuille, Charles A. Bennett
Posted Date:
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