Binomial Tree
Using a Binomial Tree with 3 steps, the price at time zero of a European put with a current stock price of 100, a strike price of 100, maturity of 9m, annual volatility of 50% and risk free annual rate of 1% is If the put was priced using Black-Scholes, the price woud be If the put was American rather than European, would it be optimal to exercise it at some point? Use the points defined in the Binomial Tree to describe your answer:
Homework Answers
Request Answer!
We need at least 9 more requests to produce the answer.
1 / 10 have requested this problem solution
The more requests, the faster the answer.
Question 1 - 35 Points Consider a European put option on a non-dividend-paying stock where the...
Question 1 - 35 Points Consider a European put option on a non-dividend-paying stock where the stock price is $15, the strike price is $13, the risk-free rate is 3% per annum, the volatility is 30% per annum and the time to maturity is 9 months. Consider a three-step troc. (Hint: dt = 3 months). (a) Compute u and d. (b) Compute the European put price using a three-step binomial tree. (c) If the option in (b) is American instead...
Problem1 A stock is currently trading at S $40, during next 6 months stock price will increase to $44 or decrease to $32-6-month risk-free rate is rf-2%. a. [4pts) What positions in stock and T-...
Problem1 A stock is currently trading at S $40, during next 6 months stock price will increase to $44 or decrease to $32-6-month risk-free rate is rf-2%. a. [4pts) What positions in stock and T-bills will you put to replicate the pay off of a European call option with K = $38 and maturing in 6 months. b. 1pt What is the value of this European call option? Problem 2 Suppose that stock price will increase 5% and decrease 5%...
The spot price per share is $115 and the risk free rate is 5% per annum...
The spot price per share is $115 and the risk free rate is 5% per annum on a continuously compounded basis. The annual volatility is 20% and the stock does not pay any dividend. All options have a one-year maturity. In answering the questions below use a binomial tree with three steps. Each step should be one-third of a year. 1)Using the binomial tree, compute the price at time 0 of a one-year European put option on 100 shares of...
. The spot price per share is $115 and the risk free rate is 5% per annum on a continuously compounded basis. The annual...
. The spot price per share is $115 and the risk free rate is 5% per annum on a continuously compounded basis. The annual volatility is 20% and the stock does not pay any dividend. All options have a one-year maturity. In answering the questions below use a binomial tree with three steps. Each step should be one-third of a year. Show your work. 1.Using the binomial tree, compute the price at time 0 of a one-year European call option...
Consider an American put option on a nondividend paying stock when the stock price is $70,...
Consider an American put option on a nondividend paying stock when the stock price is $70, the strike price is $76, the risk-free rate is 4%, the volatility is 20%, and the time to maturity is six months. Using a binomial tree model with 5 time steps, answer the following questions: a. What is the value of the option? Attach the screenshot of the tree
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price...
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5% per annum, the volatility is 25% per annum, and the time to maturity is four months. Use the Black-Scholes-Merton formula. What is the price of the option if it is a European call? What is the price of the option if it is an American call? What is the price of the option if it is...
A 1-year American put option on a stock is modeled with a 2-period binomial tree. Given that
A 1-year American put option on a stock is modeled with a 2-period binomial tree. Given that the price of the stock is 100, the strike price is 105. σ = 0.4. The continuously compounded risk-free rate is 6%. The stock pays no dividends.Determine the risk-neutral probability and the put premium
Consider an asset that trades at $100 today. Suppose that the European call and put options...
Consider an asset that trades at $100 today. Suppose that the European call and put options on this asset are available both with a strike price of $100. The options expire in 275 days, and the volatility is 45%. The continuously compounded risk-free rate is 3%. Determine the value of the European call and put options using the Black-Scholes-Merton model. Assume that the continuously compounded yield on the asset is 1,5% and there are 365 days in the year.
Consider a European put option on a currency. The exchange rate is $1.15 per unit of...
Consider a European put option on a currency. The exchange rate is $1.15 per unit of the foreign currency, the strike price is $1.25, the time to maturity is one year, the domestic risk-free rate is 0% per annum, and the foreign risk-free rate is 5% per annum. The volatility of the exchange rate is 0.25. What is the value of this put option according to the Black-Scholes-Merton model?
Consider a European put option on a non-dividend-paying stock. The current stock price is $69, the...
Consider a European put option on a non-dividend-paying stock. The current stock price is $69, the strike price is $70, the risk-free interest rate is 5% per annum, the volatility is 35% per annum and the time to maturity is 6 months. a. Use the Black-Scholes model to calculate the put price. b. Calculate the corresponding call option using the put-call parity relation. Use the Option Calculator Spreadsheet to verify your result.
Question 1 - 35 Points Consider a European put option on a non-dividend-paying stock where the stock price is $15, the strike price is $13, the risk-free rate is 3% per annum, the volatility is 30% per annum and the time to maturity is 9 months. Consider a three-step troc. (Hint: dt = 3 months). (a) Compute u and d. (b) Compute the European put price using a three-step binomial tree. (c) If the option in (b) is American instead...
Problem1 A stock is currently trading at S $40, during next 6 months stock price will increase to $44 or decrease to $32-6-month risk-free rate is rf-2%. a. [4pts) What positions in stock and T-bills will you put to replicate the pay off of a European call option with K = $38 and maturing in 6 months. b. 1pt What is the value of this European call option? Problem 2 Suppose that stock price will increase 5% and decrease 5%...
Most questions answered within 3 hours.
-
Derive the long wavelength limit of the Planck energy density
distribution
asked 7 minutes ago -
Phosphorous + bromine = phosphorous tribromide. If 35.0 g of
bromine are reacted and 27.9 grams...
asked 18 minutes ago -
Calculate the pH of each of the following solutions.
0.50 M HBr
3.1×10−4 M KOH
4.2×10−5...
asked 3 hours ago -
For the year ended December 31, Depot Max’s cost of merchandise
sold was $85,600. Inventory at the...
asked 3 hours ago -
Week 10 - Professional Memo Assignment
Professional Memo Assignment
Your mission for this week, should you...
asked 3 hours ago -
Write a Python program that stores the data for each
player on the team, and it...
asked 4 hours ago -
In
the last 3 months, mike never knows when he is going to get his
allowance...
asked 4 hours ago -
Is Ca(OH)2 a Bronsted base, Lewis base, or both? Why?
asked 4 hours ago -
1A- Why don’t voters complain about U.S. tariffs on imported
sugar?
Because sugar is only a...
asked 4 hours ago -
Cash Payback Period
Primera Banco is evaluating two capital investment proposals for
a drive-up ATM kiosk,...
asked 4 hours ago -
Create a button in Swift (Xcode) that will create a charge,
create a charge using Stripe's...
asked 4 hours ago -
The reaction rate of CO and NO2 in the reaction
CO(g) + NO2(g) → CO2(g) +...
asked 4 hours ago