Q1. A stock is currently worth $100. It pays a 4% dividend and has volatility =...
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Q1. A stock is currently worth $100. It pays a 4% dividend and has volatility = 0.25. The risk-free rate is 10%. Simulate 250 days (assuming 250 trading days in a year) of binomially distributed stock returns, and 1,000 Monte Carlo simulation repetitions, to answer the questions below. a. What is the value of a 1 year put with strike = $110? b. How much would you pay today for a barrier" option - a knock-out one-year call option with strike=$105 and the price must not go below $95 or else it is "knocked-out. In other words, this option is similar to a normal call option, but if, over any day during the year, the stock price drops below $95, then the option is knocked out of existence, and the payoff will be $0 no matter what the final stock price is. c. You are offered the following bet. In one year, you receive $5 for every day during the year that the stock price was above $112, and you pay $8 for every day the stock price was below $100. How much would you pay (or required to be paid) at t=0 in order for this to be a fair bet? Circle one: Pay / Be Paid Amount: Q1. A stock is currently worth $100. It pays a 4% dividend and has volatility = 0.25. The risk-free rate is 10%. Simulate 250 days (assuming 250 trading days in a year) of binomially distributed stock returns, and 1,000 Monte Carlo simulation repetitions, to answer the questions below. a. What is the value of a 1 year put with strike = $110? b. How much would you pay today for a barrier" option - a knock-out one-year call option with strike=$105 and the price must not go below $95 or else it is "knocked-out. In other words, this option is similar to a normal call option, but if, over any day during the year, the stock price drops below $95, then the option is knocked out of existence, and the payoff will be $0 no matter what the final stock price is. c. You are offered the following bet. In one year, you receive $5 for every day during the year that the stock price was above $112, and you pay $8 for every day the stock price was below $100. How much would you pay (or required to be paid) at t=0 in order for this to be a fair bet? Circle one: Pay / Be Paid Amount:
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