Question: Use matlab. need Matlab code We have a local volatility model with parameters: initialstockprice=S0=100,interestrate=r=0.03,localvolatilityfunction=(s)=0.1+20000(s110)2. We want to compute (at time t=0 ) of a butterfly

Use matlab. need Matlab code We have a local volatility model withUse matlab. need Matlab code

We have a local volatility model with parameters: initialstockprice=S0=100,interestrate=r=0.03,localvolatilityfunction=(s)=0.1+20000(s110)2. We want to compute (at time t=0 ) of a butterfly option with maturity T=1, with the piecewise linear payoff function h(s) shown on picture below Recall that is the partial derivative of the option price with respect to initial stock price S0. Part 1: In assignment 2 you were asked to compute the price of this option using the finitedifference method. Use that code to compute at time 0 . You can use the code that I posted as solutions to assignment 2 . Part 2: Compute using Monte Carlo simulation. Make sure that the relative error between the results produced by the finite-difference method and Monte Carlo method is less than 5%. We have a local volatility model with parameters: initialstockprice=S0=100,interestrate=r=0.03,localvolatilityfunction=(s)=0.1+20000(s110)2. We want to compute (at time t=0 ) of a butterfly option with maturity T=1, with the piecewise linear payoff function h(s) shown on picture below Recall that is the partial derivative of the option price with respect to initial stock price S0. Part 1: In assignment 2 you were asked to compute the price of this option using the finitedifference method. Use that code to compute at time 0 . You can use the code that I posted as solutions to assignment 2 . Part 2: Compute using Monte Carlo simulation. Make sure that the relative error between the results produced by the finite-difference method and Monte Carlo method is less than 5%

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!