Question

The volatility of a non-dividend-paying stock whose price is $40, is 35%. The risk-free rate is...

The volatility of a non-dividend-paying stock whose price is $40, is 35%. The risk-free rate is 6% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max(?!−52,0)]" where is the stock price in six months?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The equation , payoff = [max( S - 52,0)] is used to calcuate the payoff for call option. Hence the payoff in the below sum has been calculated accordingly using the same formula. where 52 is the exercise price.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The volatility of a non-dividend-paying stock whose price is $50, is 30%. The risk-free rate is...
The volatility of a non-dividend-paying stock whose price is $50, is 30%. The risk-free rate is 5% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max(?! − 63, 0)]" where ST is the stock price in six months?
The volatility of a non-dividend-paying stock whose price is $50, is 30%. The risk-free rate is...
The volatility of a non-dividend-paying stock whose price is $50, is 30%. The risk-free rate is 5% per annum (continuously compounded) for all maturities. Use a two-step tree to calculate the value of a derivative that pays off [max (St − 63, 0)]" where is the stock price in six months?
Consider a European call option on a non-dividend-paying stock where the stock price is $40, the...
Consider a European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40, the risk-free rate is 4% per annum, the volatility is 30% per annum, and the time to maturity is 6 months. (a) Calculate u, d, and p for a two-step tree. (b) Value the option using a two-step tree. (c) Verify that DerivaGem gives the same answer. (d) Use DerivaGem to value the option with 5, 50, 100, and 500...
A stock index is currently 1,500. ITs volatility is 18% per annum. The continuously compounded risk-free...
A stock index is currently 1,500. ITs volatility is 18% per annum. The continuously compounded risk-free rate is 4% per annum for all maturities. (1) Calculate values for u,d, and p when a six-month time step is used. (2) Calculate the value a 12-month American put option with a strike price of 1,480 given by a two-step binomial tree.
Price a European call option on non-dividend paying stock by using a binomial tree. Stock price...
Price a European call option on non-dividend paying stock by using a binomial tree. Stock price is €50, volatility is 26% (p.a.), the risk-free interest rate is 5% (p.a. continuously compounded), strike is € 55, and time to expiry is 6 months. How large is the difference between the Black-Scholes price and the price given by the binomial tree?
Price a European call option on non-dividend paying stock by using a binomial tree. Stock price...
Price a European call option on non-dividend paying stock by using a binomial tree. Stock price is €50, volatility is 26% (p.a.), the risk-free interest rate is 5% (p.a. continuously compounded), strike is € 55, and time to expiry is 6 months. How large is the difference between the Black-Scholes price and the price given by the binomial tree?
The current price of a non-dividend paying stock is $50. Use a two-step tree to value...
The current price of a non-dividend paying stock is $50. Use a two-step tree to value a European put option on the stock with a strike price of $50 that expires in 12 months. Each step is 6 months, the risk free rate is 5% per annum, and the volatility is 50%. What is the value of the option according to the two-step binomial mode
A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per...
A stock index is currently 1,500. Its volatility is 18%. The risk-free rate is 4% per annum for all maturities and the dividend yield on the index is 2.5% (both continuously compounded). Calculate values for u, d, and p when a 6-month time step is used. What is value of a 12-month European put option with a strike price of 1,480 given by a two-step binomial tree? In the question above, what is the value of a 12-month American put...
A non-dividend paying stock price is $100, the strike price is $100, the risk-free rate is...
A non-dividend paying stock price is $100, the strike price is $100, the risk-free rate is 6%, the volatility is 15% and the time to maturity is 3 months which of the following is the price of an American Call option on the stock. For full credit I expect each step of the calculations tied to the correct formulas.
The current price of a dividend-paying stock is $40. The risk-free rate of interest is 2.0%...
The current price of a dividend-paying stock is $40. The risk-free rate of interest is 2.0% per annum with continuous compounding. The stock is supposed to pay dividends in six months from now. (a) If the dividend amount is known to be $2, then the one-year forward price should be $__________ if there is no arbitrage opportunities. (b) If the dividend amount is known to be 4% of the stock price in six months, then the one-year forward price should...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT