Question 93: regarding lower Bound for European call.
Can somebody help me out with this question
I cannot get 4.30. this is my reasoning
4/1.05^3/12 = 3.95.
I chose B because it was the closest one. What am I doing wrong here?
Thanks作者: dece2011 时间: 2011-7-13 16:26
sorry do not have acesss to the question. However based on what you have written you may have omitted one part of the formula. What is S or the current value of the underlying? At this moment all you have calculated is the PV of X. You need to subtract this from S.
Lower bound for EC = MAx( 0, S- X/(1+r)^T)
Hope this helps作者: evolsteevol 时间: 2011-7-13 16:26
S is 29 and X is 25
What is this answer?作者: btcapital 时间: 2011-7-13 16:26
29 - 25/1,05^(3/12). Simple as that.作者: orang3eph 时间: 2011-7-13 16:26
Perhaps reading the equation in this manner will help.
s - (x/(1+r)^t) - The bracketed term has to be discounted prior to the subtraction作者: Penny-wenny 时间: 2011-7-13 16:26
