Chapter 19b - UN-11IFIVE DATE AMERICAN BINOMIAL CALL OPTION

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Unformatted text preview: UN-11IFIVE DATE AMERICAN BINOMIAL CALL OPTION PRICINGUp-down--including dividendsState pricesNote: The period T = 1 is divided into 4Up1.41910.3324 <-- =((1-E14)*B9-B5)/(B4-B5)subperiods. "Up" for each period is definedDown0.77880.6528 <-- =(B4-(1-E14)*B9)/(B4-B5)Initial stock price50Mean20%mean = 20% and sigma = 60%. The annualExercise price30Sigma60%interest rate of 6% is discretized as1.0151r6%exp[6%/4] -1 for each subperiod.T1The dividend rate of 8% is paid outDividend ratequarterly.Annual8%2.00% <-- =E13/4Stock price including dividends (same as if div. yld. = 0%)202.7600142.8826100.6876111.277070.953478.415650.000055.258561.070138.940043.035430.326533.516023.618318.3940Stock price after dividend payout198.7048140.024998.6739109.051569.534376.847349.000054.153459.848738.161242.174729.720032.845723.146018.0261t=0t=0.25t=0.5t=0.75t=1Dividends: Difference between two preceding trees4.05522.85772.01382.22551.41911.56831.00001.10521.22140.77880.86070.60650.67030.47240.3679168.7048American call price...
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This note was uploaded on 02/02/2012 for the course BUSINESS 201 taught by Professor Acknan during the Spring '11 term at MIT.

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Chapter 19b - UN-11IFIVE DATE AMERICAN BINOMIAL CALL OPTION

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