A stock S(0) = 100 will go up to 105 or down to 95 in one time step (time T). Suppose erT = 1.025. What is the present value of a put option with strike K = 99 and expiry T?
A stock S(0) = 100 will go up to 105 or down to 95 in one time step (time T). Suppose erT = 1.025. What is the present value of a put option with strike K = 99 and expiry T?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![3. A stock S(0) 100 will go up to 105 or down to 95 in one time step (time
T). Suppose eT 1.025. What is the present value of a put option with
strike K 99 and expiry T?
=
=](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F35f74c41-5688-4a20-9a49-8b45f994631a%2F1316ef47-19a0-4913-b9d8-f412a5e2ba04%2Fuh80sk_processed.png&w=3840&q=75)
Transcribed Image Text:3. A stock S(0) 100 will go up to 105 or down to 95 in one time step (time
T). Suppose eT 1.025. What is the present value of a put option with
strike K 99 and expiry T?
=
=
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VIEWStep 3: Formula to calculate the present value of put option;
VIEWStep 4: Calculate the volatility (σ) as follows:
VIEWStep 5: Calculate d1 and d2 as follows;
VIEWStep 6: Calculate N(−d1) and N(−d2) as follows;
VIEWStep 7: Calculate the present value of the put option (P) as follows:
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