Question

In: Finance

- If you do not want to early-exercise the call, you should hold the option until...

- If you do not want to early-exercise the call, you should hold the option until expiration.

True / False

- It can be optimal to early-exercise an American currency call option.

True / False

- It can be optimal to early-exercise an American put option on a non-dividend-paying stock.

True / False

- The price of an American oil put option can never decline with an increase in time to expiration.

True / False

The price of a European call option on a non-dividend-paying stock can never decline with an increase in time to expiration.

True / False

- The price of a European put option on a dividend-paying stock can decline with an increase in time to expiration.

True / False

If it is optimal to exercise a 100-strike call option, it is also optimal to exercise an otherwise identical 110-stike call.

True/False

Solutions

Expert Solution

If you do not want to early-exercise the call, you should hold the option until expiration.

True

- It can be optimal to early-exercise an American currency call option.

False

Early exercising is not an optimal option because if you hold the strike price X till the expiration date by which the holder can save the interest component on the call option.

- It can be optimal to early-exercise an American put option on a non-dividend-paying stock.

True

suppose the stock price reaches zero, then the option holder gains from exercising rather than waiting as they can save the interest on the payout X-S may not yield much

- The price of an American put option can never decline with an increase in time to expiration.

True

it increases with an increase in time of expiration

The price of a European call option on a non-dividend-paying stock can never decline with an increase in time to expiration.

True

- The price of a European put option on a dividend-paying stock can decline with an increase in time to expiration.

True

If it is optimal to exercise a 100-strike call option, it is also optimal to exercise an otherwise identical 110-stike call.

True

jeff jeffy answered 11 months ago

Next > < Previous

Related Solutions

1.An American call option on a stock ____________ (should or should not) be exercised early when...

1.An American call option on a stock ____________ (should or should not) be exercised early when no dividends are expected. 2.The European put price plus the stock price must be __________ (lower, equal, or higher) the European call price plus the __________ (present or future) value of the strike price. 3.A European put option is always worth _______________ (less than, equal, or more than) the present value of the strike price. A European call option is always worth ________________ (less...

In which situation should you exercise an American call or an American put early, assuming no...

In which situation should you exercise an American call or an American put early, assuming no dividends? Provide your reasoning.

Question 14. In which situation should you exercise an American call or an American put early,...

Question 14. In which situation should you exercise an American call or an American put early, assuming no dividends? Provide your reasoning.

When would you exercise an American call option? When would you exercise an American put option?

You are attempting to value a call option with an exercise price of $75 and one...

You are attempting to value a call option with an exercise price of $75 and one year to expiration. The underlying stock pays no dividends, its current price is $75, and you believe it has a 50% chance of increasing to $95 and a 50% chance of decreasing to $55. The risk-free rate of interest is 10%. Based upon your assumptions, calculate your estimate of the the call option's value using the two-state stock price model. (Do not round intermediate...

You are attempting to value a call option with an exercise price of $108 and one...

You are attempting to value a call option with an exercise price of $108 and one year to expiration. The underlying stock pays no dividends, its current price is $108, and you believe it has a 50% chance of increasing to $145 and a 50% chance of decreasing to $71. The risk-free rate of interest is 9%. Calculate the call option's value using the two-state stock price model.

You are attempting to value a call option with an exercise price of $109 and one...

You are attempting to value a call option with an exercise price of $109 and one year to expiration. The underlying stock pays no dividends, its current price is $109, and you believe it has a 50% chance of increasing to $130 and a 50% chance of decreasing to $88. The risk-free rate of interest is 12%. Calculate the call option’s value using the two-state stock price model.

You are attempting to value a call option with an exercise price of $150 and one...

You are attempting to value a call option with an exercise price of $150 and one year to expiration. The underlying stock pays no dividends. Its current price is $100. The stock price either increases by a factor of 1.5, or decreases by a factor of 0.5, every six months. The risk-free rate of interest is 2% per year (or 1% per six-month period). What is the value of this call option using the two-period binomial option pricing model? (Do...

You are attempting to value a call option with an exercise price of $107 and one...

You are attempting to value a call option with an exercise price of $107 and one year to expiration. The underlying stock pays no dividends, its current price is $107, and you believe it has a 50% chance of increasing to $125 and a 50% chance of decreasing to $89. The risk-free rate of interest is 8%. Calculate the call option’s value using the two-state stock price model.

8) You are attempting to value a call option with an exercise price of $60 and...

8) You are attempting to value a call option with an exercise price of $60 and one year to expiration. The underlying stock pays no dividends, its current price is $60, and you believe it has a 50% chance of increasing to $95 and a 50% chance of decreasing to $25. The risk-free rate of interest is 7%. Based upon your assumptions, calculate your estimate of the the call option's value using the two-state stock price model. (Do not round...

Subjects