Let S = $40, K = $45, σ = 0.30, r = 0.08, δ = 0, and T = {0.25, 0.5, 1, 2, 3, 4, 5, 100}.   Compute the prices of knock-out calls with a barrier of $38. Compute the ratio of the knock-out call prices to the prices of standard calls. Explain the pattern you see.

Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter4: Accounting For Factory Overhead
Section: Chapter Questions
Problem 4E: Using the data in E4-2 and spreadsheet software, determine: The variable cost per unit, the total...
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Let S = $40, K = $45, σ = 0.30, r = 0.08, δ = 0, and T = {0.25, 0.5, 1, 2, 3, 4, 5, 100}.

 

Compute the prices of knock-out calls with a barrier of $38.

Compute the ratio of the knock-out call prices to the prices of standard calls. Explain the pattern you see.

 

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