Show that the approximate value of the American commodity put option based on the quadratic approximation method is given by S Explain why the formula holds for all values of b Show that P(S, T) P(S, T) S 91 91 1 eh N( d(S )) ( ) S S ...

The Answer is in the image, click to view ...

Show that the approximate value of the American commodity put option based on the quadratic approximation method

Question:

Show that the approximate value of the American commodity put option based on the quadratic approximation method is given by

P(S, T) = P(S, T) S* 91 91 [1-eh-N(-d(S*))](/) S*.">

Explain why the formula holds for all values of b.

Show that

and P(S, T) = P(S, T)+c KS, as (S*, t) = e(br)t N(-d (S*)).

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

Step by Step Answer:

Related Book For book-img-for-question

Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

See More Books

Question Posted: Dec 05, 2023 01:13 AM

See More Questions

KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
By considering the corresponding integral representation of the early exercise premium of an American commodity option with cost of carry b, show that (a) When b r, r is the riskless interest rate,...
The scene is a conference room on the 10th floor of an office building on Wall Street, occupied by Anthes Enterprises, a small, rapidly growing manufacturer of electronic trading systems for...
Write a program that takes an integer command-line argument n and creates an n-by-n boolean array a[][] such that a[i][j] is true if i and j are relatively prime (have no common factors), and false...
GAINS AND LOSSES ON THE SALE OF LONG-TERM ASSETS The income statement for Hubbard's Professional Edge Tennis Camp follows. Assume that all revenues and expenses were for cash and that land was sold...
Answer the following questions, assuming that the related divorce agreements were executed during 2016. a. Under a divorce agreement, Joan is required to pay her ex-husband, Bill, $700 a month until...
3. Exhibit 16.12 presents market and profit data for three companies that operate in the same industry. Using the data, compute ratios of enterprise value to EBITDA and enterprise value to EBITA for...
Describe the channel of distribution for a craft beer from Belgium to your city or town. How many channel levels will be involved? Brewing craft beer is both an art and a science, and Sonia Collin, a...
ABC Corporation Balance Sheat For the Period Ending December 31, 2017 Assets \begin{tabular}{|c|c|c|} \hline \multicolumn{3}{|l|}{ Current Assets } \\ \hline \begin{tabular}{l} Cash \\ Accounts...
Show that where p () is defined in (5.4.2). To prove the results in (5.4.6a,b,c), it suffices to consider the sign behavior of Consider the following two cases (Dai, Kwok and Wu, 2004). (a) For r ...
The approximate equation for f in the quadratic approximation method becomes undefined when K() = 1 e r = 0, which corresponds to r = 0. Following a similar derivation procedure as in the quadratic...
A student who worked for Chipotle stated: I love the Chipotle standard that what's best for the people (employees) is best for the company and vice versa, so I always strive to do my best. It sounds...
The Penguin Textile Company sells shirts for men and boys. Results for January 2 0 2 3 are summarized below. Men's Boy's Total Revenue $ 1 7 2 , 8 0 0 $ 7 2 , 0 0 0 $ 2 4 4 , 8 0 0 Variable costs 1 2...
SINGLE, MARRIED FILING SEPERATELY, OR HEAD OF HOUSEHOLD SINGLE, MARRIED FILING SEPERATELY, OR HEAD OF HOUSEHOLD Over $0 $12,500 $50,000 But Not Over $12,500 $50,000 Tax Due Is 4% of taxable income...
17. S T D -3 -2 graph of glx) 2 The graph of the continuous function g is shown above for -46x4. The Function g is twice differentiable, except at x=0. let & be the function with flo1=-2 and f'(x) =...
Tim works for HydroTech, a manufacturer of high-pressure industrial water pumps. He reports directly to the CFO, and she has asked him to calculate HydroTech's WACC. He has gathered the following...
You are appraising a 15,450 square foot (SF) building and using the Cost Approach. The base cost is $50/SF, the local multiplier is 1.05, the current cost multiplier is 0.92. The land value is...
Find a basis for M23. What is the dimension of M23? Generalize to Mmn.
Privitera and Freeman (2012) constructed a scale to measure or estimate the daily fat intake of participants; the scale was called the estimated daily intake scale for fat (EDIS-F). To validate the...
How did information technology affect decision making at Team USA and the Oakland Athletics? What kinds of decisions changed as the result of using computers?
How much was technology responsible for Team USAs Americas Cup victory?
How much does baseball rely on sabermetrics? Explain your answer.
Fig 1. Rolling a 4 on a D4 A four sided die (D4), shaped like a pyramid (or tetrahedron), has 4 flat surfaces opposite four corner points. A number (1, 2, 3, or 4) appears close to the edge of each...
I just need help with question #4 please! Thank you! Windsor Manufacturing uses MRP to schedule its production. Below is the Bill of Material (BOM) for Product A. The quantity needed of the part...
(25) Suppose that we have an economy consisting of two farmers, Cornelius and Wheaton, who unsurprisingly farm corn c and wheat w, respectively. Assume that both farmers produce their crop of choice...

Show that the approximate value of the American commodity put option based on the quadratic approximation method

Question:

P(S, T) = P(S, T) – S* 91 91 [1-eh-N(-d₁(S*))](/)". S> S*.

Step by Step Answer:

Mathematical Models Of Financial Derivative

Students also viewed these Business questions

P(S, T) = P(S, T) – S* 91 91 [1-eh-N(-d₁(S))](/)". S> S.