Question
Suppose the interest rate is fixed at 1% per month. A particular stock follows the price movement below: (a) What is the price of a
Suppose the interest rate is fixed at 1% per month. A particular stock follows the price movement below:
(a) What is the price of a European put option with maturity two months, and strike of $26? To answer, construct and solve the replicating portfolio problem with position a in shares and b in bonds.
(b) What is the price of an American put option with maturity two months, and strike of $26? Again, construct and solve the replicating portfolio problem with position a in shares and b in bonds. Comment on the difference between the value of the two options, and its decomposition.
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ISE International Financial Management
Authors: Cheol Eun, Bruce Resnick, Tuugi Chuluun
9th International Edition
1260575314, 9781260575316
