Derivative Security

Assume the following set of baseline parameters: The initial stock price (S0) is 45, the stock volatility is 0.30 (30% per annum), and the risk-free rate is 0.02 (2% per annum). Consider a European put option whose strike price is equal to 40, with a time-to-maturity of two years. The dividend yield is 0.04 (4% per annum). In some later tasks, you also encounter the “equivalent” American option.

Sample Solution

ACED ESSAYS