The investor uses the following strategy. At the end of March, he exercises the option only if

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The investor uses the following strategy.

At the end of March, he exercises the option only if the stock price is above $51.50. At the end of April, he exercises the option (assuming he hasn’t exercised it yet) only if the price is above $50.75. At the end of May, he exercises the option (assuming he hasn’t exercised it yet) only if the price is above $50.00.

(This isn’t necessarily his best strategy, but it’s a reasonable one.) Simulate 250 replications of this strategy and answer the following:

a. Estimate the probability that he will exercise his option.

b. Estimate his net profit with this strategy. (This doesn’t include the price of the contract.)

c. Estimate the probability that he will net over $300.

d. Estimate the worth of this contract to him.

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Practical Management Science, Revised

ISBN: 9781118373439

3rd Edition

Authors: Wayne L Winston, S. Christian Albright

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