Question
In: Finance
Let S = $65, r = 6% (continuously compounded), d = 1%, s = 30%, T...
Let S = $65, r = 6% (continuously compounded), d = 1%, s = 30%, T = 0.5. In this situation, the appropriate values of u and d are 1.17645 and 0.87153, respectively. Using a 2-step binomial tree, calculate the value of a $75-strike European put option. CORRECT ANSWER= $11.214. Please show all your work, NO EXCEL :)
Solutions
Expert Solution
Solution.>
The price of the 6-month European put option is $11.215
Although you have mentioned no excel, but I have solved this question in Excel as all my students clearly understand Binomial Solutions from this excel and I have also attached the formula sheet used in solving the question. It will be very easy for you to understand from this. If you still have any doubt, kindly ask in the comment section.
The formula used are:
Note: Give it a thumbs up if it helps! Thanks in advance!
jeff jeffy answered 2 years agoRelated Solutions
Let S = $70, r = 4% (continuously compounded), d = 3%, s = 40%, T...
Let S = $70, r = 4% (continuously compounded), d = 3%, s = 40%,
T = 1.5. In this situation, the appropriate values of u and d are
1.42463 and 0.71255, respectively. Using a 2-step binomial tree,
calculate the value of a $60-strike European call option.
Option D is correct, but how? Can you provide solution for
Excel? formulas and steps or actual excel work sheet?
Answers:
a. $18.875
b. $18.496
c. $19.450
d. $18.317
e. $15.930
5. Let S = $45, r = 3% (continuously compounded), d = 5%, s = 30%,...
5. Let S = $45, r = 3% (continuously compounded), d = 5%, s =
30%, T = 1.5. In this situation, the appropriate values of
u and d are 1.27738 and 0.75972, respectively.
Using a 2-step binomial tree, calculate the value of a $40-strike
European call option.
Use: Table 1: Table of the Standard Normal Cumulative
Distribution Function ?(z):
https://math.ucalgary.ca/files/math/normal_cdf.pdf
a. $7.037
b. $8.305
c. $7.783
d. $8.141
e. $7.960
1a) Let S = $55, K = $50, r = 6% (continuously compounded), d = 2%,...
1a)
Let S = $55, K = $50, r = 6% (continuously compounded), d = 2%,
s = 40%, T = 0.5, and n = 5. In this situation, the appropriate
values of u and d are 1.13939 and 0.88471,
respectively. What is the value of p*, the risk-neutral probability
of an upward movement in the stock price at any node of the
binomial tree?
Answers:
a.
0.5316
b.
0.4998
c.
0.3738
d.
0.4146
e.
0.4684
1b)
Let S =...
post all the steps Let S = $50, r = 4% (continuously compounded), d = 3%,...
post all the steps
Let S = $50, r = 4% (continuously compounded), d = 3%, s = 30%,
T = 1.5. In this situation, the appropriate values of u
and d are 1.30644 and 0.77701, respectively. Using a
2-step binomial tree, calculate the value of a $45-strike American
call option.
a.
$10.477
b.
$9.867
c.
$10.168
d.
$9.919
e.
$10.367
Let S = $52, s = 20%, and r = 7% (continuously compounded). The stock is...
Let S = $52, s = 20%, and r = 7% (continuously compounded). The
stock is set to pay a single dividend of $1.10 nine months from
today, with no further dividends expected this year. Use the
Black-Scholes model (adjusted for the dividend) to compute the
value of a one-year $50-strike European call option on the
stock.
Answer = $6.43 Please solve and show all work. Thanks
1. Let U = {r, s, t, u, v, w, x, y, z}, D = {s,...
1. Let U = {r, s, t,
u, v, w, x, y,
z}, D = {s, t, u,
v, w}, E = {v, w,
x}, and F = {t, u}. Use roster
notation to list the elements of D ∩ E.
a.
{v, w}
b.
{r, s, t, u, v,
w, x, y, z}
c.
{s, t, u}
d.
{s, t, u, v, w,
x, y, z}
2. Let U = {r, s,
t, u, v, w, x,
y, z},...
Let L = {x = a r b s c t | r + s =...
Let L = {x = a r b s c t | r + s = t, r, s, t ≥ 0}. Give the
simplest proof you can that L is not regular using the pumping
lemma.
Let f : R → S and g : S → T be ring homomorphisms. (a)...
Let f : R → S and g : S → T be ring homomorphisms.
(a) Prove that g ◦ f : R → T is also a ring homomorphism.
(b) If f and g are isomorphisms, prove that g ◦ f is also an
isomorphism.
(Black-Scholes) Assume S = $22.00, σ = 0.30, r = 0.05 p.a. continuously compounded, the stock...
(Black-Scholes)
Assume S = $22.00, σ = 0.30, r = 0.05 p.a. continuously
compounded, the stock pays a 1.0% p.a. continuous dividend and the
option expires in a month.
(a) What is the price of a $20 strike call? (Leave 2 d.p. for
the answer)
(b) What is the delta? (Leave 3 sig. fig. for the answer)
(c) If the stock price changes to $22.10 immediately, what is
the approximate change of the call price based on delta? (Leave 3...
Suppose the 6-month risk free spot rate in HKD is 1% continuously compounded, and the 6-month...
Suppose the 6-month risk free spot rate in HKD is 1%
continuously compounded, and the 6-month risk free rate in NZD is
3% continuously compounded. The current exchange rate is 5
HKD/NZD.
Suppose our usual assumptions hold, i.e., no constraints or
other frictions. What is the forward exchange rate with 6 months to
maturity such that there is no arbitrage?
Suppose again that our usual assumptions hold, i.e., no
constraints or other frictions. Suppose you can enter a forward
contract...
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