Question
A power option pays off [max(S T -X,0)] 2 at time T, where S T is the stock price at time T and X is
A power option pays off [max(ST-X,0)]2 at time T, where ST is the stock price at time T and X is the exercise price. A stock price is currently $24. It is known that at the end of one year it will be either $30 or $18. The risk-free rate of interest with continuous compounding is 5% per annum. Calculate the value of a one year power option with an exercise price of $26.
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Financial Management EMEA Theory And Practice
Authors: Michael Ehrhardt, Roland Fox, Eugene Brigham
2nd Edition
1473760216, 9781473760219
