Use the following information to respond to problems
S0= $40; σ= 40%; r = 0.03; D = $0; T = 1.
Find the value of an American call option with a strike price of $45 using a two-step binomial model
Use the following information to respond to problems S0= $40; σ= 40%; r = 0.03; D...
Consider the BS model with S0=120,μ=0.2,r=0.04,T=1 and σ=0.3. The price of a call option with strike price K=100 is
Consider a model for a security with time zero value S0 = 150, a yearly effective interest rate of .01% and volatility σ^2 = (.02)^2 . Implement a binomial model to price option in python. 3. Price an Asian Call Option with payoff ((1/T)(Integral from 0 to T)(Stdt) − X)+ with expiry T = 1/2 years and strike price X = 150. Carry out the binomial model in N = 25 an N = 50, steps.
Solve the below problems on Excel. 1. The current price of Bank of America (BAC) is $10.The annual stan- dard deviation is 12%. The continuously compounded risk-free rate is 5% per year. Assume BAC pays no dividends. (a) Compute the value of a 1 year European call option with a strike price of $7 using a one-step (At = 1) binomial model. (b) Compute the value of a 1 year European call option with a strike price of $7 using...
Value of a stock is currently at $40. Volatility of that stock is 30% per year and risk-free interest rate with continuous compounding is at 5% per year. Suppose you are planning to value a 3-month European call option with strike price at $41 using a two-step binomial model. Answer the following using this information. (Binomial Tree Approach to Option Valuation describe how to solve this problem) What are the values of u, d and q?
Part II (Binomial Tree) ai' 1. Compute the price of a call option using the stock price tree u1.4634 and d=0.7317. The stock price is $38. The strike price is 840 and the interest rate is 8%. The time-period is 6 month. Use a 2 stage binomial tree 2. Assume that where ?-8%, the dividend yield ?. 0, ? is the annual standard deviation and ?VE is the standard deviation over a period of length h. The initial stock price...
In a binomial tree model, S0=32. In the next period, ST is either 35 or 30. Assume interest rate is 0. Calculate the price of a call option with strike equal to 31. A. 0.6 B. 1 C. 1.6 D. 2
I. Consider the N-step binomial asset pricing model with 0 < d < 1 + r < u. Assume N = 3, So 100, r = 0.05, u = 1.10, and d 0.90. Calculate the price at time zero of each of the following options using backward induction (a) A European put option expiring at time N 2 with strike price K-100 (b) A European put option expiring at time N 3 with strike price K- 100 (c) A European...
Use a two-step binomial model to evaluate a call option on a stock with the following price projections. The current stock price is $80 and the strike price on the options is $82. The option expires in 6 months so each step is 3 months. The risk- free rate is 5%. What is the value of the call option? Note: to be eligible for partial credit, please show your work as much as possible and be sure to clearly indicate...
1) consider a CRR model T = 2, S0= $100 , S1 = $200 or S1 = $50 an associated European call option with strike price k = $80 and exercise time T = 2 assume that the risk free interest rate r = 0.1 a) draw the binary tree and compute the arbitrage free initial price of the European call option at time zero. b) Determine an explicit hedging strategy for this option c) Suppose that the option is...
Using a binomial tree, calculate the price of a $40 strike 6-month call option, using 3-month intervals as the time period. Using the US system. Assume the following data: S = $37.90, r = 5.0%, σ = 30%.