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| Subject:
The-Black-Scholes-Merton Model
Category: Miscellaneous Asked by: lamdky-ga List Price: $10.00 |
Posted:
13 Nov 2005 04:39 PST
Expires: 13 Dec 2005 04:39 PST Question ID: 592445 |
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, the risk-free interest rate is 5%, the volatility is 25% per annum, and the time to maturity is 4 months. Assume that the stock is due to go ex-dividend in 1.5 months. The expected dividend is 50 cents. If the option is an American call, are there any circumstances under which it will be exercised early? |
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| Subject:
Re: The-Black-Scholes-Merton Model
From: igorp01-ga on 14 Nov 2005 05:54 PST |
The circumstances for premature exercise are obvious: say, underlying asset has grown to 35$, and now shows prominent head and shoulders. Roll-Geske-Whaley will give a price for this option as 2.22$ - so it is quite probable that the option will be really exercised |
| Subject:
Re: The-Black-Scholes-Merton Model
From: politicalguru-ga on 14 Nov 2005 07:01 PST |
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