Question
A stock price is currently $40. Over each of the next two three-month periods it is expected to go up by 10% or down by
A stock price is currently $40. Over each of the next two three-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 12% per annum with continuous compounding.
(a) What is the value of a six-month European put option with a strike price of $42?
(b) What is the value of a six-month American put option with a strike price of $42?
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Finance Applications and Theory
Authors: Marcia Cornett
4th edition
1259691411, 978-1259691416
