423_02 - r = 0 . 06 , u = 0 . 059, d =-. 0562, S = 100, K =...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Math 423 Mathematics of Finance Computer Assignment 2 Due: April 13, 2010 Instructions: Complete the following exercises by computer implementation. You are welcome to use any computer program you wish (e.g. Matlab, Mathematica, Microsoft Excel). You are welcome to work in groups on this assignment but each registered student should submit a separate document written in their own words . Include in your submission a clear and concise description of how you went about solving the problem (i.e. formulas used and the order in which you used them). At the end of your document you should include an appendix consisting of your computer code. All assignments must be handed-in during class exclusively. Have fun! Exercise: Binomial Model. Consider a binomial model of a risky asset with the parameters
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: r = 0 . 06 , u = 0 . 059, d =-. 0562, S = 100, K = 100, T = 1, 4 t = 1 / 12. Note that u and d are monthly returns and r is the annual rate of return on a risk-free asset. Determine the price of an European call option on this non-dividend paying asset at time 0. Using the same contract specications as above, nd the price at time 0 of the American call option. Exercise: The Black-Scholes Greeks. Please see formulas on page 198 of the textbook. Using r = 0 . 03, = 0 . 2, T = 1, K = 100, graph the delta and gamma of a European Call option on a non-dividend paying asset for initial stock prices 50 S 150. 1...
View Full Document

This note was uploaded on 12/31/2011 for the course MATH 423 taught by Professor Duran during the Winter '08 term at University of Michigan.

Ask a homework question - tutors are online