Question
A collect-on-delivery call (COD) costs zero initially, with the payoff at expiration being 0 if S = K. The value P is a constant and
A collect-on-delivery call (COD) costs zero initially, with the payoff at expiration being 0 if S and S K P if S>= K. The value P is a constant and is the amount the option-holder pays if the option is in-the-money at expiration. The value P is determined at the inception of the option and then stays fixed for the life of the option. Let K = $100, r = 5%, volatility = 20%, and time to expiration is 1 year, and no dividends. P is 19.6329. What is the price of a COD call when the current stock price is $101. Remember that P is fixed.
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