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Q3. a) Use the Black (1975) approximation to calculate the price of an American call option with a dividend given the following information: - Price
Q3.
a) Use the Black (1975) approximation to calculate the price of an American call option with a dividend given the following information:
- Price of the underlying stock: $49
- Option strike price: $44
- Risk-free interest rate: 2.77%
- Volatility (variance) of the return on the share: 22%
- Two dividend dates - in two months: D1 = 0.82
- in five months: D2 = 0.82
- This option fails in six months
b) Is it possible to use the model in a) to calculate the price of a put? Define and explain an alternative if not.
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