Question
Could someone solve these a,b and c with explenation Option Replication: In this question, we will try to price a non-standard option using the idea
Could someone solve these a,b and c with explenation
Option Replication: In this question, we will try to price a non-standard option using the idea of payoff replication (just like what we did in the later part of Question 3)). Assume that current price of Amazon is $3200, the stock price annualized volatility is 30%, zero rate is 1% and 1-year represents the price of an Amazon share 1-year from now.
-
Value (i.e. find the cost of) an option which has a payoff of max [(1-year - 3200)^2,0] at the end of 1-year.
-
Value (i.e. find the cost of) an option which has a payoff of max [1-year^2-10,240,000,0] at the end of 1-year.
c. Value (i.e. find the cost of) an option which has a payoff of
$10000 1-year 3200
0 h
at the end of 1-year.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started