Assume Asian options’ payoff is max(S ̅-K,0), where S ̅ represents the average of stock price...
Assume Asian options’ payoff is max(S ̅-K,0), where S ̅ represents the average of stock price S_t, with 0≤t≤T. Can Binomial tree technique be applied to price such Asian option?
(Give a descriptive answer)
Homework Answers
The Binomial Option model can be applicable when there are two options or two possible outcomes only. But in the given information, and they mention the time duration for maturity. By using this information only, we can not construct binomial distribution technique.
For example, if were provided the current stock price, and the change in price level for next month for both up and down side, by using this information, we can construct binomial tree.
but in the above case these two are not mentioned, hence we can not construct binomial tree.
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Assume Asian options’ payoff is max(S ̅-K,0), where S ̅
represents the average of stock price...
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1. Consider an Asian call option written on an asset S that has the risk-neutral process given by...
1. Consider an Asian call option written on an asset S that has the risk-neutral process given by, dSt įrdt+6dz , with σ being constant. St If the maturity payoff of the Asian call option adopts the geometric average price at three different times Tı , T2, and T ( where Ti < T〈 T) as, cr = mar(GT-K, 0} , where GT-CS7,ST25)3 112 Determine the current price of the Asian call option.
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The diagram below represents the payoff of a European call option on the stock with a...
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3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with...
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Part II (Binomial Tree) ai' 1. Compute the price of a call option using the stock...
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2. Assume there are two Call options for Intel stock at CBOE with strike price 100...
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Problem 1: A call option of strike K > 0 is a financial contract that payoffs...
Problem 1: A call option of strike K > 0 is a financial
contract that payoffs S>K dollars if S > K and 0 dollars
otherwise where S is the stock price of the company at
maturity.
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1. (Put-call parity) A stock currently costs So per share. In each time period, the value...
1. (Put-call parity) A stock currently costs So per share. In each time period, the value of the stock will either increase or decrease by u and d respectively, and the risk-free interest rate is r. Let Sn be the price of the stock at t-n, for O < n < N, and consider three derivatives which expire at t - V, a cal option Voll-(SN-K)+, a put option VNut-(X-Sy)+, and a forward option VN(SN contract FN SN N) ,...
4. An Asian option is an option whose payoffs depend on the average price of the un- derlying asset over a certain period of time (instead of the price at maturity in the case of standard options). Early exercise of the option is not allowed. For instance, consider the payoff of an Asian Call option at maturity (in three months) on a stock ABC that does not pay dividends : Cz = max ( Si + S2 + S3 -...
1. Consider an Asian call option written on an asset S that has the risk-neutral process given by, dSt įrdt+6dz , with σ being constant. St If the maturity payoff of the Asian call option adopts the geometric average price at three different times Tı , T2, and T ( where Ti < T〈 T) as, cr = mar(GT-K, 0} , where GT-CS7,ST25)3 112 Determine the current price of the Asian call option.
1. Consider an Asian call option written...
3. (10 pts) For each k e [0, 1,2,..., 301 the symbol S(k) denotes the price of the stock at time k. A European call option with strike 90 and expiration n- 30 costs 15. A European put option with strike 100 and expiration 30 costs 11. Both options have the same stock as their underlying security. What is the price of the security whose payoff structure is 7S (30) 630, if S(30) 100, S(30)-30, if 90 S(30) S 100,...
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...
Assume there are three Put options for Walmart stock at CBOE with strike price 50, 60 and 70, respectively. The current stock price for Intel is 55. (0) Construct a Butterfly Spread using these options. Specify the option positions you hold. Draw the terminal payoff graph for the butterfly spread.
2. Assume there are two Call options for Intel stock at CBOE with strike price 100 and 120. The current stock price for Intel is 110. Construct a Bull Spread using these options. Specify the option positions you hold. Draw the terminal payoff graph for the bull spread. (1)
Problem 1: A call option of strike K > 0 is a financial
contract that payoffs S>K dollars if S > K and 0 dollars
otherwise where S is the stock price of the company at
maturity.
I shall use ![.] for the indicator function, and φ(z)-(2π)-1/2e-0.5? Problem 1: A call option of strike K > 0 is a financial contract that payoffs S -K dollars if S> K and 0 dollars otherwise where S is the stock price of...
1. (Put-call parity) A stock currently costs So per share. In each time period, the value of the stock will either increase or decrease by u and d respectively, and the risk-free interest rate is r. Let Sn be the price of the stock at t-n, for O < n < N, and consider three derivatives which expire at t - V, a cal option Voll-(SN-K)+, a put option VNut-(X-Sy)+, and a forward option VN(SN contract FN SN N) ,...
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