With the fixed continuously compounded rate r, the Black-Scholes stock price S, at time t follows...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
With the fixed continuously compounded rate r, the Black-Scholes stock price S, at time t follows a lognormal distribution given by In S~ N(In So + (r-²)t, o²t), where o is the constant volatility. Suppose that So = 100, r = .02,σ = .3 find the price of the digital option with the strike K = 110, maturity T = 1, and the face value F = 1000, this means the option payoff at maturity is either F whenever STK or 0 otherwise. Find the option price. With the fixed continuously compounded rate r, the Black-Scholes stock price S, at time t follows a lognormal distribution given by In S~ N(In So + (r-²)t, o²t), where o is the constant volatility. Suppose that So = 100, r = .02,σ = .3 find the price of the digital option with the strike K = 110, maturity T = 1, and the face value F = 1000, this means the option payoff at maturity is either F whenever STK or 0 otherwise. Find the option price.
Expert Answer:
Answer rating: 100% (QA)
To find the price of the digital option we can use the BlackScholes formula for a European call option The formula is as follows C F er T Nd2 Where C is the option price F is the face value r is the c... View the full answer
Related Book For
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary
Posted Date:
Students also viewed these finance 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...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
a) Suppose a borrower knows at time t = 0 that it will have available at time t = 1 an opportunity to invest $340 in a risky project that will pay off at time t = 2. The borrower knows that it will...
-
Air flows through the fine mesh gauze shown in the figure below with an average velocity of 1.50 m/s in the pipe. Determine the loss coefficient for the gauze. KL= i 8.1mm V = 1.5 m/s Water Gauze...
-
Gunnison Supply provides the following information about resources: In addition, sales for the period totaled $150,000. Required a. Compute unused resource capacity for each resource. b. Describe...
-
Managers are quick to claim that quantitative analysts talk to them in a jargon that does not sound like English. List four terms that might not be understood by a manager. Then explain in...
-
For the system shown in Figure 10.83, derive the state-space equations using the state variables indicated. Make sure to give the A, B, C, and D matrices. Also determine the poles of the system....
-
Presented below is information related to Carver Inc. Instructions (a) Compute the following ratios or relationships of Carver Inc. Assume that the ending account balances are representative unless...
-
Total gross sales for the period include the following: Credit card sales (discount 3%) Sales on account (1/15, n/60) $9,600 $11,400 Sales returns related to sales on account were $350. All returns...
-
Female Drosophila heterozygous for three recessive mutations e (ebony body), st (scarlet eyes), and ss (spineless bristles) were testcrossed, and the following progeny were obtained: (a) What...
-
On 1 March 2022. Deep Breath, a fitness fanatic, set up a gym called Fitshape Gym to follow his passion to promote healthy living. The following were the transactions for month ended 31 March 2022:...
-
Assume you have a balance of $3200 on your credit card that you want to pay off. Calculate your monthly payment and total payment under the given conditions. Assume you make no additional charges to...
-
Think about it, there are only 6 things that can change an employee's job status: Death, Disability, Retirement, Voluntary Separation, Involuntary Separation, and Promotion. For the exercise, you are...
-
David Brown pays John Stone $50,000 in a non-competition contract not to open a pizza restaurant in the same suburb as David's restaurant. He also pays John $5,000 to advertise his (David's)...
-
Mary works as an accountant in a small chartered accounting firm during the day and at night as a part-time teacher in accounting studies. She usually travels between jobs by car and does not stop on...
-
Roland Ashe is an investor who earns rental income from commercial property . Total rent received was $980,540( inclusive of GST) . At the year end(30 June) , a further $16,500 relating to June but...
-
A firm evaluates all of its projects by using the NPV decision rule. Cash Flow Year 0123 -$27,000 20,000 13,000 8,000 a. At a required return of 14 percent, what is the NPV for this project? b. At a...
-
Modify the counter from Exercise 5.44 such that the counter will either increment by 4 or load a new 32-bit value, D, on each clock edge, depending on a control signal Load. When Load = 1, the...
-
What is the cost of equity (Ke) given RF = 2%, beta () = 1.5, expected market return (ERM) =12%? BALANCE SHEET Cash Marketable securities Accounts receivable Inventory $140,000 Accounts payable...
-
Summarize the main factors you need to consider if the CFO of your firm asks you to evaluate your firms capital structure.
-
State the decision rules for NPV, IRR, PI, and the discounted payback period. List two possible consequences of using IRR.
-
What is the aim of the Companies Creditors Arrangement Act?
-
Distinguish between public international law and private international law.
-
What is meant by the proper law of the contract?
Study smarter with the SolutionInn App