Question

A
stock price is currently $40. Over each of the next two three-month
periods it is expected to go up by10%. The risk-free interest rate
is 12% per annum with continuous compounding.

(a) What is the value of a six-month European put option with
a strike price of $42?

(b) What is the value of a six-month American put option with
strike price of $42?

Answer #1

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A.

B.

A stock price is currently $40. Over each of the next two
three-month periods it is expected to go up by 10% or down by 10%.
The risk-free interest rate is 12% per annum with continuous
compounding.
What is the value of a six-month European put option with a
strike price of $42?
What is the value of a six-month American put option with a
strike price of $42?
What is the value of a six-month American put option with...

The stock price is currently $110. Over each of the next two
six-month periods, it is expected to go up by 12% or down by 12%.
The risk-free interest rate is 8% per annum with continuous
compounding. What is the value of a one-year European call option
with a strike price of $100?

A stock price is currently $50. Over each of the next two
three-month periods it is expected to go up by 8% with a
probability of 50% or down by 4% with a probability of 50%. The
risk-free interest rate is 4% per annum with continuous
compounding. What is the value of a six-month European call option
with a strike price of $50? Use binomial tree method to solve this
problem.

A stock price is currently $100. Over each of the next two
3-month periods it
is expected to go up or go down with up-factor u and down-factor d.
The risk-free interest
rate is 6% per annum with continuously compounding. Consider a
6-month American put
option with a strike price of K.
Find the price of this American put option. Motivate your
solutions, discuss early exercising decisions at each nodes prior
to the maturity.
K = 100, u = 1.3,...

A price on a non-dividend paying stock is currently £50. Over
each of the next two six-month periods the stock is expected to go
up by 5% or down by 10%. The risk- free interest rate is 3% per
annum with continuous compounding.
(a) What is the value of a one-year European call option with a
strike price of £48? [10 marks]
(b) What is the value of a one-year American call option with a
strike price of £48? [4...

A stock price is currently 100. Over each of the next
to six months periods it is expected to go up by 10% or down by
10%. the risk free interest rate is 8% per annum. What is the value
of the European call and put options with a strike price of 100?
Verify that the put call parity is satisfied.

A stock price is currently S = 100. Over the next year, it is
expected to go up by 100% (u = 2) or down by 50% (d = 0.50). The
risk-free interest rate is r = 20% per annum with continuous
compounding. What is the value of a 12-month European Put option
with a strike price K = 100?

A stock price is
currently $100. Over each of the next two six-month periods, it is
expected to go up by 10% or down by 10%. The risk-free interest
rate is 10% per year with semi-annual compounding.
Part I.
Use the two-steps
binomial tree model to calculate the value of a one-year American
put option with an exercise price of $101.
Part II.
Is there any early
exercise premium contained in price of the above American put
option? If there...

►A stock price is currently $50. It is known that at the end of
six months it will be either $46 or $54. The risk-free interest
rate is 5% per annum with continuous compounding. What is the value
of a six-month European put option with a strike price of $48? What
is the value of a six-month American put option with a strike price
of $48?

Assuming current stock price of ABC Company is $100. Over each
of the next two six-month periods, the price is expected to go up
by 10% or down by 10% during each six-month period. The risk-free
interest rate is 8% per annum with annual compounding.
Required:
a. Calculate the option premium for a one-year European call
option with an exercise price of $80. Show your calculation steps.
b. Using the option premium calculated in Part a of Question 9,
estimate...

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