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put is not needed 2. (McDonald Problem 11.9 p. 343/4) Let K-$40, 30%,r=8%, T=0.5, and assume the stock will pay a single dividend of $2
put is not needed 2. (McDonald Problem 11.9 p. 343/4) Let K-$40, 30%,r=8%, T=0.5, and assume the stock will pay a single dividend of $2 tomorrow, with no dividend thereafter. (Hint: To value a European call on a stock about to pay a dividend, use the ex-dividend value of the stock in the Black-Scholes formula.) a. IIS 550, what is the price of a European call? What is the price of an otherwise identical American call? b. If S - $60, what are the prices of the European and of the American call options? c. What is the rule for determining whether or not early exercise is optimal? (That is, at what stock prices would you choose to exercise early? 2. (McDonald Problem 11.9 p. 343/4) Let K-$40, 30%,r=8%, T=0.5, and assume the stock will pay a single dividend of $2 tomorrow, with no dividend thereafter. (Hint: To value a European call on a stock about to pay a dividend, use the ex-dividend value of the stock in the Black-Scholes formula.) a. IIS 550, what is the price of a European call? What is the price of an otherwise identical American call? b. If S - $60, what are the prices of the European and of the American call options? c. What is the rule for determining whether or not early exercise is optimal? (That is, at what stock prices would you choose to exercise early
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