You are given: (i) The current price of a stock is 42. (ii) The stock pays dividends

Question:

You are given:

(i) The current price of a stock is 42.

(ii) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 3%.

(iii) The continuously compounded risk-free interest rate is 5%.

(iv) The following table shows the prices of 3-month 4-strike European compound options, whose underlying options are 45-strike and expire 1 year from now:

Call on Put on Call 2.20 1.46 Put 3.14 ?

Calculate the price of the PutOnPut option.

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Derivative Pricing

ISBN: 9780367734213

1st Edition

Authors: Ambrose Lo

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Question Posted: Nov 24, 2023 10:31 PM

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You are given: (i) The current price of a stock is 42. (ii) The stock pays dividends

Question:

Call on Put on Call 2.20 1.46 Put 3.14 ?

Step by Step Answer:

Note the two different times to expiration T 1 025 a...View the full answer

Derivative Pricing

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