Will the value of the option increase or decrease

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Reference no: EM131813637

Under the general framework with stock behavior and interest rate satis- fying the no-arbitrage condition 0 < d < 1 + r < u, suppose we have a stock with initial value S0 and a European put with strike price K, where S1(T) < K < S1(H). If the interest rate increases, will the value of the option increase or decrease. [Hint: Write the general formula for the value of the option and dierentiate with respect to r.]

Reference no: EM131813637

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