Compute the fair value of a chooser option

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Reference no: EM13194912

Question 1

Compute the price of an American call option with strikeK=110and maturityT=.25years.

Question 2

Compute the price of an American put option with strikeK=110and maturityT=.25years.

Question 3

Is it ever optimal to early exercise the put option of Question 2?

Question 4

If your answer to Question 3 is "Yes", when is the earliest period at which itmightbe optimal to early exercise? (If your answer to Question 3 is "No", then you should submit an answer of 15 since exercising after 15 periods is not an early exercise.)

Question 5

Do the call and put option prices of Questions 1 and 2 satisfy put-call parity?

Question 6

Compute the fair value of an American call option with strikeK=110and maturityn=10periods where the option is written on a futures contract that expires after 15 periods. The futures contract is on the same underlying security of the previous questions.

Question 7

What is the earliest time period in which you might want to exercise the American futures option of Question 6?

Question 8

Compute the fair value of achooseroption which expires aftern=10periods. At expiration the owner of the chooser gets to choose (at no cost) a European call option or a European put option. The call and put each have strikeK=100and they mature 5 periods later, i.e. atn=15.

Reference no: EM13194912

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