Find the optimal exercise time and the price
Course:- Other Subject
Reference No.:- EM131755124

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> Other Subject

Question 1 - Consider a two-period CRR binomial setting where interest rate is r = 0 and the intial stock price is S0 = 100. The stock price can go up by a factor of u = 1.1 or down by a factor of d = 0.9. Consider the American option where the payoffs at times 0, 1 and 2 are defined as

X0 = 16, X1 = (105 - min0≤t≤1 St)+, X2 = (max0≤t≤2 St - 95)+.

Find the optimal exercise time and the price of this option at t = 0.

Note: Be careful in finding the payoffs. This is a path-dependent option.

Question 2 - Assume W is a standard Brownian motion and

P(t, T)| = e((T-t)W_t + 1/6(T-t)^3+½(T-t)^2+(T-t)).

Find the short rate r(t).

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Other Subject) Materials
As health care looks at continuous improvement (as done in manufacturing), one of the most prominent questions that has arisen is, "Can the principles that worked in manufac
The Capstone Paper should demonstrate understanding of the reading as well as the implications of new knowledge. The ten to fifteen page paper should integrate readings, cla
An inference is a conclusion drawn from evidence or reasoning; something that is implied. We use our own experiences and clues from what we hear and see to make educated guess
Your task is to prepare a report to be presented to your co-investors which identifies two (2) Local Government Areas in Australia which meet your criteria. Your report shou
Dracca's Senior Vice President of Sales, Bob Marley, and one of his sales representatives, Bill Farian, were on a conference call and learned that Dracca's new line of high
Describe a value proposition and provide an example. How important is value to the consumer? How would you describe relationship marketing? Why are these relationships so impo
Having  developed  the high  level  strategies of  your  business in Strategic  Management your  group  is then required  to turn  your  attention  to implementation. Projec
The star grouping Leo (the lion) extends for about 30° along a region close to the celestial equator. At low latitudes to midlatitudes, roughly how long will it take Leo to