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An up-and-out barrier call option with barrier B, strike price K and exercise time T has payoff H(T) = (S(T) – K) + if max {S(t)| 0 ≤ t ≤ T}

An up-and-out barrier call option with barrier B, strike price K and exercise time T has payoff H(T) = (S(T) – K) + if max {S(t)| 0 ≤ t ≤ T}

Essentials Of Investments
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
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Finance Question 1 An up-and-out barrier call option with barrier B, strike price K and exercise time T has payoff H(T) = (S(T) – K) + if max {S(t)| 0st<T} < B, O otherwise, that is, the payoff is that of a call option if the underlying stock price does not reach or exceed the barrier B at any time up to and including time T, and 0 otherwise. For an up-and-out barrier call option with barrier B = 140, strike price K = 90 and exercise timeT = 3 in the binomial model with parameters U = 0.2, D = -0.1, R = 0.1 and S(0) = 100 compute the following. (a) The option price at time 0; %3D %3D
Transcribed Image Text:Finance Question 1 An up-and-out barrier call option with barrier B, strike price K and exercise time T has payoff H(T) = (S(T) – K) + if max {S(t)| 0st<T} < B, O otherwise, that is, the payoff is that of a call option if the underlying stock price does not reach or exceed the barrier B at any time up to and including time T, and 0 otherwise. For an up-and-out barrier call option with barrier B = 140, strike price K = 90 and exercise timeT = 3 in the binomial model with parameters U = 0.2, D = -0.1, R = 0.1 and S(0) = 100 compute the following. (a) The option price at time 0; %3D %3D
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