Each of the following questions should be answered by building a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with: T =.25 years, S0 =100, r=2%, σ=30% and a dividend yield of c=1%. Your binomial model should use a value of u = 1.0395 and d = 1/u = 0.96201. (This has been rounded to four decimal places but you should not do any rounding in your spreadsheet calculations.) Compute the price of an American put option with strike K = 110 and maturity T = .25 years. Is it ever optimal to early exercise the put option of above?
Each of the following questions should be answered by building a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with: T =.25 years, S0 =100, r=2%, σ=30% and a dividend yield of c=1%. Your binomial model should use a value of u = 1.0395 and d = 1/u = 0.96201. (This has been rounded to four decimal places but you should not do any rounding in your spreadsheet calculations.) Compute the price of an American put option with strike K = 110 and maturity T = .25 years. Is it ever optimal to early exercise the put option of above?
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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Each of the following questions should be answered by building a 15-period binomial model whose parameters should be calibrated to a Black-Scholes geometric Brownian motion model with: T =.25 years, S0 =100, r=2%, σ=30% and a dividend yield of c=1%. Your binomial model should use a value of u = 1.0395 and d = 1/u = 0.96201. (This has been rounded to four decimal places but you should not do any rounding in your spreadsheet calculations.)
Compute the price of an American put option with strike K = 110 and maturity T = .25 years.
Is it ever optimal to early exercise the put option of above?
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