The futures price of a commodity is $88. Use a three-step tree to value (a) a nine-month American call option with strike price $91 and (b) a nine-month American put option with strike price $91. The volatility is 28% and the risk-free rate (all maturities) is 3% with continuous compounding. 8.044 and 10.988 7.218 and 10.169 7.734 and 10.679 8.560 and 11.506

The futures price of a commodity is $88. Use a three-step tree to value (a) a nine-month American call option with strike price $91 and (b) a nine-month American put option with strike price $91. The volatility is 28% and the risk-free rate (all maturities) is 3% with continuous compounding. 8.044 and 10.988 7.218 and 10.169 7.734 and 10.679 8.560 and 11.506

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The futures price of a commodity is $45. The volatility of the futures price is 14% and the continuously compounded risk free rate is 3% for all maturities. An American put option on the futures contract has strike price of $45 and a time to expiration of 6 months. Use a two-step tree. Which of the following is closest to the value of the American put ? a. $1.5625 b. $1.5508 c. $0.0
The futures price of a commodity is $45. The volatility of the futures price is 14% and the continuously compounded risk free rate is 3% for all maturities. An American put option on the futures contract has strike price of $45 and a time to expiration of 6 months. a. $1.5625 b. $1.5508 c. $0.0
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