Compute the price of the European call option using the R program introduced in class where K = 100, S0 = 85, r = 10%, σ = 25% and T=0.5 Year. a. Use the Black-Scholes-Merton formula. b. Use the Monte-Carlo method. (Decide on the number of iterations and time step by your own) c. Compare the results in part a and b.
Compute the price of the European call option using the R program introduced in class where K = 100, S0 = 85, r = 10%, σ = 25% and T=0.5 Year. a. Use the Black-Scholes-Merton formula. b. Use the Monte-Carlo method. (Decide on the number of iterations and time step by your own) c. Compare the results in part a and b.
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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Compute the price of the European call option using the R program introduced in class where K = 100, S0 = 85, r = 10%, σ = 25% and T=0.5 Year.
a. Use the Black-Scholes-Merton formula.
b. Use the Monte-Carlo method. (Decide on the number of iterations and time step by your own)
c. Compare the results in part a and b.
d. Do the same calculations for the put option price where all parameters are the same
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