Monday, August 25, 2008

Chapter 4

Question:
Difference between pricing by its boundary conditions and using an exact option pricing formula.
Principal benefit of a binomial option pricing model.
Model produces a call option price that is higher than the price at which the option is trading, what strategy is suggested?
Model accommodates the possibility of early exercise of an option.
Difference recombining and non recombining tree

Ways to incorporate dividends into models

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