Exercise: (Binomial and Continuous Model.) Consider a binomial model of a risky asset with the parameters r = 0:06, u = 0:059, d =  0:0562, S0 = 100, T = 1, 4t = 1=12. Note that u and d are monthly eective rates of return and r is the annual eective risk-free interest rate.

Determine the price of a European put option with strike price X = 98 on the above non-dividend paying asset at time 0 and nd x(1); y(1), i.e., the number of shares of the stock and risk-free asset needed at time 0 to replicate the European option over the rst time-step.

Posted Date: 3/9/2013 1:04:05 AM | Location : United States

Ask an Expert

Related Discussions:- Binomial and continuous model, Assignment Help, Ask Question on Binomial and continuous model, Get Answer, Expert's Help, Binomial and continuous model Discussions

Write discussion on Binomial and continuous model
Your posts are moderated

Write your message here..

Related Questions

Probability theory, Origin and Development of probability Theory: The c... Origin and Development of probability Theory: The credit for origin and development of probability goes to the European gamblers of 17 th century. They  used to gamble  on gam

Mle, mle mle

Correlation coefficient, Consider three stocks A, B and C costing $100 each... Consider three stocks A, B and C costing $100 each. The annual returns on the three stocks have mean $5 and variance $10. a. Suppose that the returns on the three stocks are i.i

Geometric mean, Geometric Mean is defined as the n th root of the ... Geometric Mean is defined as the n th root of the product of numbers to be averaged. The geometric mean of numbers X 1 , X 2 , X 3 .....X n is given as

Regression analyses in R, i need to solve couple questions on a data set ? i need to solve couple questions on a data set ?

Lorenz curve , Lorenz Curve   It is a graphic method of measur... Lorenz Curve   It is a graphic method of measuring dispersion. This curve was devised by Dr. Max o Lorenz a famous statistician.  He used this technique for wealth it i

Find the conditional distribution of turning diameter, 1. Assume the random... 1. Assume the random vector (Trunk Space, Length, Turning diameter) of Japanese car is normally distributed and the unbiased estimators for its mean and variance are the truth. For

Calculate the ratio of the sample standard deviation, The Case Study includ... The Case Study included information about the price for a full meal before and after the law change (in dollars).  Of interest is whether the differences in price for a full meal b

Rank correlation, Rank Correlation Sometimes the characteristics whose ... Rank Correlation Sometimes the characteristics whose possible correlation is being investigated, cannot be measured but individuals can only be ranked on the basis of the chara

Normal curve applications, Replacement times for TV sets are normally distr... Replacement times for TV sets are normally distributed with a mean of 8.2 years and a standard deviation of 1.1 years. Find the replacement time that separates the top 20% from the