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Consider a stock with time 0 price 100 USD. The stock has a continuous dividend rate 8 = 0, 1. Continuous risk-free interest rate is
Consider a stock with time 0 price 100 USD. The stock has a continuous dividend rate 8 = 0, 1. Continuous risk-free interest rate is r = 0,05. The stock's volatility is o = 0, 3. Use a binomial model with three periods where each period is h = 1/3 year(4 months). a) Draw a binomial price for the share price. Use 'rise factor = e(7-8)htova and 'decline factor U= d=er-th-oh b) What will be the time o market value of a European at-the-money call option (call) with maturity in one year? c) A friend of yours who has already completed a master's degree in economics uses a Cox-Ross-Rubinstein binomial tree with U= and d =1/u. What will be time o market value of the same call option as in question b) under this premise. d) Briefly comment on any differences in the calculated market values in sub-questions b) and c). Use u and d from sub-question a) in the rest of the problem. e) What will be the time o market value of a US at-the-money call option with maturity in one year? Calculate the optimal exercise strategy. Consider a stock with time 0 price 100 USD. The stock has a continuous dividend rate 8 = 0, 1. Continuous risk-free interest rate is r = 0,05. The stock's volatility is o = 0, 3. Use a binomial model with three periods where each period is h = 1/3 year(4 months). a) Draw a binomial price for the share price. Use 'rise factor = e(7-8)htova and 'decline factor U= d=er-th-oh b) What will be the time o market value of a European at-the-money call option (call) with maturity in one year? c) A friend of yours who has already completed a master's degree in economics uses a Cox-Ross-Rubinstein binomial tree with U= and d =1/u. What will be time o market value of the same call option as in question b) under this premise. d) Briefly comment on any differences in the calculated market values in sub-questions b) and c). Use u and d from sub-question a) in the rest of the problem. e) What will be the time o market value of a US at-the-money call option with maturity in one year? Calculate the optimal exercise strategy
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