Sunday

December 21, 2014

December 21, 2014

Posted by **Anonymous** on Tuesday, October 16, 2012 at 4:21pm.

and that the interest rate (continuously compounding, annualized) is 10%.

(1) p(90) = 4; p(100) = 9 1/8 ; p(110) = 16; p(120) = 25 3/4

(2) p(90) = 2 ¾ ; p(100) = 81/2 ; p(110) = 17; p(120) = 24

For each set of prices, please answer the following questions:

(a) Assume that the stock will not pay any dividend in the next 6 months. Do

these prices satisfy arbitrage restrictions on options values? If yes, prove it. If

not, construct an arbitrage portfolio to realize riskless pro_ts and show how that

portfolio performs whatever the underlying price does.

(b) Would your answer to Part (a) change if these put options are Americans? Why?

(c) Would your answer to Part (a) change if the stock will pay an unknown amount

of dividend in 3 months? Explain why.

**Answer this Question**

**Related Questions**

Finance - . You are given the following two sets of prices of European options ...

economics - What are futures and options? What is the difference between ...

Finance - 1. Determine the intrinsic values of the following call options when ...

Finance - A trader buys a European call option and sells a European put option. ...

Piecewise Function - The following questions I dont understand, could you please...

risk management - You are the risk manager of an energy producing company. Your...

algebra - the size and diameter of your pizza the two options for number of ...

Coporate Finance - Exotic Cuisines Employee Stock Options As a new graduate, you...

math- pre calculus - you are depositing $1000 dollars in a savings account and ...

Finance - Using Monte Carlo simulation, calculate the price of a 1-year European...