Exercise 1. A stock is worth $50 on december, 1st 2021. This price increases by 4% ou decreases by 4% every 2 months. The flat continuous rate of interest is 5% and the continuous rate of dividend is 2%. a) What is the premium of an American call on this stock with a maturity of 6 months and a strike price of $48? b) What is the premium of a European put on the stock? Maturity and strike price remain unchanged. c) In option pricing theory, what does ‘risk neutral’ probability mean? What is the probability the European put gets exercised?
Exercise 1. A stock is worth $50 on december, 1st 2021. This price increases by 4% ou decreases by 4% every 2 months. The flat continuous rate of interest is 5% and the continuous rate of dividend is 2%. a) What is the premium of an American call on this stock with a maturity of 6 months and a strike price of $48? b) What is the premium of a European put on the stock? Maturity and strike price remain unchanged. c) In option pricing theory, what does ‘risk neutral’ probability mean? What is the probability the European put gets exercised?
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 5P: A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s...
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Exercise 1.
A stock is worth $50 on december, 1st 2021. This price increases by 4% ou decreases by 4% every 2 months. The flat continuous rate of interest is 5% and the continuous rate of dividend is 2%.
a) What is the premium of an American call on this stock with a maturity of 6 months and a strike price of $48?
b) What is the premium of a European put on the stock? Maturity and strike price remain unchanged.
c) In option pricing theory, what does ‘risk neutral’ probability mean? What is the probability the European put gets exercised?
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