3. (a) Explain the similarities and differences between being the short party of a forward contract and being the holder of an American put
3. (a) Explain the similarities and differences between being the short party of a forward contract and being the holder of an American put option contract. [6 marks] Suppose St is the price of a company's share at time t. Let at time t, ct be the price of a European call option contract and pt be the price of a European put option contract on the share with the same strike price K and maturity date T. The continuously compounded constant risk-free rate of interest is r per annum. Consider two times u and v such that t < u
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Ans The present value of the contract at t0 can be calculated by discounting each cash flow back to ...
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Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
15th edition
77861612, 1259194078, 978-0077861612, 978-1259194078
