Given 10 trials of risk-neutral stock prices and the 1-year risk free rate. Trial 1 2...
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Given 10 trials of risk-neutral stock prices and the 1-year risk free rate. Trial 1 2 3 4 5 6 7 8 9 10 T=0 100 100 100 100 100 100 100 100 100 100 Stock Price T=1 98 74 120 85 85 65 75 95 110 97 T=2 110 75 160 90 99 70 95 98 120 62 T=3 13 0 220 110 60 60 120 58 63 33 Trial 1 2 3 4 5 6 7 8 9 10 1-Year Risk Free Rate T=1 T=2 T=3 3.50% 2.75% 2.75% 3.75% 4.50% 4.50% 3.50% 2.75% 4.50% 4.75% 2.50% T=0 3.00% 3.00% 3.00% 2.75% 3.00% 3.75% 3.00% 2.50% 3.25% 3.00% 3.75% 4.50% 3.75% 3.00% 3.00% 2.50% 2.75% 2.75% 2.25% 1.50% 3.75% 4.00% 3.75% 2.75% 3.00% 3.00% 3.00% 3.00% 3.75% a) What is the value of a derivative that pays St-K the first time St-K > 0 and 0 otherwise with K=100? b) What if in addition the 1-year risk-free rate at that point in time of the payoff must be greater or equal to 3.00% Given 10 trials of risk-neutral stock prices and the 1-year risk free rate. Trial 1 2 3 4 5 6 7 8 9 10 T=0 100 100 100 100 100 100 100 100 100 100 Stock Price T=1 98 74 120 85 85 65 75 95 110 97 T=2 110 75 160 90 99 70 95 98 120 62 T=3 13 0 220 110 60 60 120 58 63 33 Trial 1 2 3 4 5 6 7 8 9 10 1-Year Risk Free Rate T=1 T=2 T=3 3.50% 2.75% 2.75% 3.75% 4.50% 4.50% 3.50% 2.75% 4.50% 4.75% 2.50% T=0 3.00% 3.00% 3.00% 2.75% 3.00% 3.75% 3.00% 2.50% 3.25% 3.00% 3.75% 4.50% 3.75% 3.00% 3.00% 2.50% 2.75% 2.75% 2.25% 1.50% 3.75% 4.00% 3.75% 2.75% 3.00% 3.00% 3.00% 3.00% 3.75% a) What is the value of a derivative that pays St-K the first time St-K > 0 and 0 otherwise with K=100? b) What if in addition the 1-year risk-free rate at that point in time of the payoff must be greater or equal to 3.00%
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To answer your question we will first analyze the provided table of stock prices over 10 trials and at different times T0 T1 T2 and T3 We will calculate the value of the derivative in part a that pays ... View the full answer
Related Book For
Applied Regression Analysis and Other Multivariable Methods
ISBN: 978-1285051086
5th edition
Authors: David G. Kleinbaum, Lawrence L. Kupper, Azhar Nizam, Eli S. Rosenberg
Posted Date:
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