Let S = $100, K = $120, = 30%, r = 0.08, and = 0.
Question:
Let S = $100, K = $120, σ = 30%, r = 0.08, and δ = 0.
a. Compute the Black-Scholes call price for 1 year to maturity and for a variety of very long times to maturity. What happens to the option price as T →∞?
b. Set δ = 0.001. Repeat (a). Now what happens to the option price? What accounts for the difference?
MaturityMaturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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a As T approaches infinity the call approaches the value of the underly...View the full answer
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