Compute the price of the European call option using the R program where K = 100, S0

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

Question:

Compute the price of the European call option using the R program where K = 100, S0 = 85, r = 10%, σ = 25% and T=0.5 Year.

a. Use the Black-Scholes-Merton formula.

b. Use the Monte-Carlo method. (Decide on the number of iterations and time step by your own)

c. Compare the results in part a and b.

d. Do the same calculations for the put option price where all parameters are the same.

Related Book For answer-question

Derivatives Markets

ISBN: 978-0321543080

4th edition

Authors: Rober L. Macdonald

See More Books

Posted Date: Apr 19, 2023 03:59 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...
Use the following inputs to compute the price of a European call option: S = $100, K = $50, r = 0.06, = 0.30, T = 0.01, = 0. a. Verify that the Black - Scholes price is $50.0299. b. Verify that the...
Using the past history of short-term interest rates, you estimated by regression the model rn+dt =a + (rt + ut+dt Suppose that the parameter estimates generated the tree for interest rates in Table...
Three components can be used to build an Oracle statement: Statement, Prepared-Statement and CallableStatement.(True/False)
Write a UNIX program that creates a child process that prints a greeting, sleeps for 20 seconds, then exits. The parent process should print a greeting before creating the child, and another after...
People perform better when asked to do their best. True/False?
MAC Industries completed the following inventory transactions during the month of August: Requirements 1. Without resorting to calculations, determine which inventory method will result in MAC...
Using either Skechers USA, Inc. most current Form 10-K or the companys annual report, answer the questions below. To obtain the Form 10-K use either the EDGAR system following the instructions in...
So we had to read an article called "How will you measure your life?" She asked us these questions below: 1. Summarize the case: Who are the actors, how are the actors involved, what are the TWO MOST...
Case Study: Quick Fix Dental Practice Technology requirements Application must be built using Visual Studio 2019 or Visual Studio 2017, professional or enterprise. The community edition is not...
If we take many samples, the sample means x varies from sample to sample according to a Normal distribution with a mean equal to the unknown mean score ? in the population. What is the standard...
A uniform beam of length 10 m and mass 100 kg is supported by pylons on either end. A 200 kg box is centered at 5 m from the left end of the beam. What is the downward force on the left most pylon?
Discuss the 4 types of dividends.Whichof the 4 isused most often, and why?What may happen to a company's share price when dividends areannounced orpaid?Why do you think this is so?
How many gallons are in a rectangular reservoir if the water pressure at the bottom is 5.3psi? The reservoir is 40feet long, 30 feet wide, and 20 feet high
Bonus: The angle of depression of the top of Billings Building from the roof of the Wolcott Building (in the same vertical plane) is 33.10, and from the 15th floor it is 21.50. If the distance...
A lone wire connects two well-separated conducting spheres. One sphere has a radius of 10.0cm and an electric potential of 250.0V (using a reference of the zero point at infinite distance). The other...
In addition to the main function that we've been using, the program will need three programmer-defined functions. These functions will work together to repeat a message on the screen. The first...
Activator rod AB exerts on crank BCD a force P directed along line AB. Knowing that P must have a 100-N component perpendicular to arm BC of the crank, determine (a) The magnitude of the force P, (b)...
You have sold one 45-strike put with 180 days to expiration. Compute and graph the 1-day holding period profit if you delta- and gamma-hedge this position using the stock and a 40-strike call with...
Use the information in Table 15.5. a. What is the price of a bond that pays one barrel of oil 2 years from now? b. What annual cash payment would the bond have to make in order to sell for $20.90?...
Repeat Problem 11.1, only assume that r = 0.08. What is the greatest strike price at which early exercise will occur? What condition related to put-call parity is satisfied at this strike price?
Will you accept the following as good voucher? (a) A bill of Rs. 5,000 submitted by a salesman for his travelling allowance (b) A cash memo for Rs. 500 for a perambulator of a company producing...
How do you vouch the following? (a) Custom duty paid on import of machinery (b) Income from house property (c) Royalty payable to a foreign collaborator (d) Traveling expenses (e) Interest and...
What are the differences between auditing and accountancy?

Compute the price of the European call option using the R program where K = 100, S0

Question:

Expert Answer:

a BlackScholesMerton formula Using the BSM formula we can calculate the price of the European call option as follows d1 lnS0K r 22 T sqrtT d2 d1 sqrtT ... View the full answer

Derivatives Markets

Students also viewed these accounting questions