Question
8. Suppose that the stock in Figure 2.3 will pay a dividend of 5% of its value at time 2. As before, interest rates are
8. Suppose that the stock in Figure 2.3 will pay a dividend of 5% of its value at time 2. As before, interest rates are zero and between times 2 and 3 the value of the stock will either increase or decrease by 20. Find the time zero price of an American call option on this stock with strike 100 and maturity 3. Is it ever optimal to exercise early ?
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Handbook Of The Economics Of Finance
Authors: George M. Constantinides, Milton Harris, Rene M. Stulz
1st Edition
044459406X, 978-0444594068
