(a) Price the option in Problem 7 by Monte Carlo. Use the Numerical Integration algorithm. (b) Same...

Question:

(a) Price the option in Problem 7 by Monte Carlo. Use the Numerical Integration algorithm.

(b) Same question using Algorithm 13. How many trials are required to get 3 correct digits in both? What are the runs times for both?

Data in Problem 7

Use a 4-step binomial tree to price a call option with these particulars: S₀ = 36, K = 34, r = 0.02, σ = 0.3, T = 4 weeks (28 days).

Data in Algorithm 12

inputs: So, u, o, T, r, N a = log So + T-0T >see (3.42) 820T E=0 for i= 1,..., N Z~ N(0,1) Y = eZ+a E = E

Data in Algorithm 13

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Finance With Monte Carlo

ISBN: 9781461485100

2013th Edition

Authors: Ronald W. Shonkwiler

See More Books

Question Posted: Oct 03, 2023 06:25 AM

See More Questions

Question 3: (10 Points): For the bend shown in figure below, if the flow rate= 0.05 m/s, and the pressure at section 2 = 100 kPa. The difference in elevation between sections 1 and 2 = 10 m,...
The speeds of vehicles (in mph) passing through a section of Highway 75 are recorded for a random sample of 150 vehicles and are given below. Test the hypothesis that the speeds are normally...
(a) Price the option in Problem 7 if the company has announced it will give a $0.66 per share dividend in 7 days. (b) Same question except the option is an index fund whose dividend yield is 7.3 %....
1) Explain what creates value and identify if there are aspects that do not create value. (Please include the citation and references) 2)What is the strength of Hyatt Hotel's Loyalty 3)What makes you...
Cathy Talbert is the general manager of Barham Company, which provides data-management services for physicians in the Columbus, Ohio, area. Barham Company is having a rough year. Net income trails...
FREE CASH FLOW Bailey Corporations financial statements (dollars and shares are in millions) are provided here. Balance Sheets as of December 31 2014 2013 Assets Cash and equivalents $ 14,000 $...
Which charts can the analyst use to graphically evaluate the classification models in terms of costs and revenues?
Inez has a specific set of plans to build a sailboat. The plans are detailed, and any boatbuilder can construct the boat. Inez secures bids, and the low bid is made by the Whale of a Boat Corp. Inez...
Selected current year company information follows: Net income Net sales Total liabilities, beginning-year Total liabilities, end-of-year Total stockholders' equity, beginning-year Total stockholders'...
A company whose current stock price is $43.44 has been paying a quarterly dividend of $0.77 per quarter. What is the annual yield? What should be the price of an 8 month forward contract on this...
A portfolio consists of a long 55 put and a short 50 put. Show how to replicate this portfolio using stocks and calls. Comparing the payoff graphs of the two puts, which put has greater value no...
Celtor plc is a property development business operating in the London area. The business has the following capital structure as at 30 November Year 9: The ordinary shares have a current market value...
3. (30 pts total) Suppose that an automobile has the ability to accelerate from rest to a velocity of 100.0 mi/h in a time of 6.00 s. a. (15 pts) Assuming the acceleration is a constant, determine...
Factor completely. 2-2t+16
Use the following table to answer questions and ll]. The number of hot dogs sold by 12 randomly selected hot dogs vendors in Central Park on July 4 is as follows: 142 97 105 76 90 83 123 115 92 94 73...
Can you please describe (in about a paragraph) a situation (preferably but not necessarily in business) that requires a decision necessitating a decision tree with at least two branches, each branch...
Data: Sodium Systolic98 14799 14996 175109 14591 135107 14987 121110 170102 163103 141117 14992 13590 12793 132113 18199 152114 164103 14496 148111 180128 18392 13284 135102 141103 147117 16789...
Differentiate between ownership via joint tenancy with right of survivorship and tenancy in common.
Why is a help desk and production support critical to system implementations? Discuss its interrelationship with the problem management and reporting system.
As indicated by the derivation, the principle of impulse and momentum is valid for observers in any inertial reference frame. Show that this is so, by considering the 10-kg block which rests on the...
The 4-lb cabinet is subjected to the force F =12(t + 1)^2 lb where t is in seconds. If the cabinet is initially moving up the plane with a velocity of 10 ft/s, determine how long it will take before...
If it takes 35s for the 50-Mg tugboat to increase its speed uniformly to 25 km/h, starting from rest, determine the force of the rope on the tugboat. The propeller provides the propulsion force F...
4. The risk-free rate of return is 3.78% and the market risk premium is 6.42%. What is the expected rate of return on a stock with a beta of 1.09?
Maddox Resources has credit sales of $ 1 8 0 , 0 0 0 yearly with credit terms of net 3 0 days, which is also the average collection period. Maddox does not offer a discount for early payment, so its...
Selk Steel Co., which began operations on January 4, 2017, had the following subsequent transactions and events in its long-term investments. 2017 Jan. 5 Selk purchased 50,000 shares (25% of total)...

(a) Price the option in Problem 7 by Monte Carlo. Use the Numerical Integration algorithm. (b) Same...

Question:

inputs: So, p, o, T, r, N alog So + μTo²T >see (3.42) 820²T E=0 for i=1,..., N Z~ N(0,1) Y = e³Z+a E = E +G(Y) end for E = E/N option price ▷see (3.43) e-TE

Step by Step Answer:

The question refers to pricing a call option using Monte Carlo methods as described by two algorithms Algorithm 12 and Algorithm 13 Before proceeding with the simulation lets clarify the parameters gi...View the full answer

Finance With Monte Carlo

Students also viewed these Business questions