A stock is worth $50 on December, 1st 2021. This price increases by 4% ou decreases by

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A stock is worth $50 on December, 1st 2021. This price increases by 4% ou decreases by 4% every 2 months. The flat continuous rate of interest is 5% and the continuous rate of dividend is 2%.

a) What is the premium of an American call on this stock with a maturity of 6 months and a strike price of $48?

b) What is the premium of a European put on the stock? Maturity and strike price remain unchanged.

c) In option pricing theory, what does ‘risk neutral’ probability mean? What is the probability the European put gets exercised?

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A Pathway to Introductory Statistics

ISBN: 978-0134310039

1st edition

Authors: Jay Lehmann

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Posted Date: Jan 29, 2022 09:00 AM

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A stock is worth $50 on December, 1st 2021. This price increases by 4% ou decreases by

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Answer Explanation a Formula used b Formula used C Riskneutral probabiliti... View the full answer

A Pathway to Introductory Statistics

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