Question: Consider a put option on the ASX200 index. Assume the index currently stands at 5,768. It is expected to increase or decrease by 15% over

Consider a put option on the ASX200 index. Assume the index currently stands at 5,768. It is expected to increase or decrease by 15% over each of the next two time periods of two months. The risk-free rate is 5.75% and the dividend yield on the index is 2.5%.

a) What is the value of the option if it is European with four-months to maturity and has an exercise price of 5,700. Show your calculations.

b) What is the value of the option if it is American with four-months to maturity and has an exercise price of 5,700. Show your calculations.

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a Value of the option max0 ST K ST 5700 1 0152 656125 K 5700 Value of the option max0 656125 ... View full answer

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