19 Consider a perpetual put option with S ($50 ), K ($60 ), r 0 06, 0 40, and 0 03 a What is the price of the option and at what stock price should it be exercised b Suppose 0 04 with all other inputs the same What happens to the price and exercise barrier Why c Suppose r 0 07 with all other inputs...

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19. Consider a perpetual put option with S = ($50), K = ($60), r = 0.06, ...

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19. Consider a perpetual put option with S = $$50$, K = $$60$, r = 0.06, σ = 0.40, and

δ = 0.03.

a. What is the price of the option and at what stock price should it be exercised?

b. Suppose δ = 0.04 with all other inputs the same. What happens to the price and exercise barrier? Why?

c. Suppose r = 0.07 with all other inputs the same. What happens to the price and exercise barrier? Why?

d. Suppose σ = 50% with all other inputs the same. What happens to the price and exercise barrier? Why?

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Derivatives Markets Pearson New International Edition

ISBN: 978-1292021256

3rd Edition

Authors: Robert L. Mcdonald

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19. Consider a perpetual put option with S = ($50), K = ($60), r = 0.06, ...

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Derivatives Markets Pearson New International Edition

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