Refer to the previous question. Another type of option is the Asian option. Its payoff is not

Question:

Refer to the previous question. Another type of option is the Asian option. Its payoff is not based on the price of the stock on the expiration date but, instead, on the average price of the stock over the lifetime of the option. Suppose a stock has an initial price (P0) of $80, an expected annual growth rate (v) of 15%, and a standard deviation (α) of 25%.

a. Create a spreadsheet model to simulate this stock's price behavior for the next 13 weeks (note t = 1/52 because the time period is weekly).

b. Suppose you are interested in purchasing a call option with a strike price of $75 and an expiration date at week 13. On average, how much profit would you earn with this option?

c. Assume a risk-free discount rate is 6%. How much should you be willing to pay for this option today? (Use Excel's NPV function.)

d. If you purchase the option, what is the probability that you will make a profit?

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...