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Stock price and the stock volatility

Assume the following set of baseline parameters: The initial stock price (S0) is 45, the stock volatility is 0.30 (30% per annum), and the risk-free rate is 0.02 (2% per annum). Consider a European put option whose strike price is equal to 40, with a time-to-maturity of two years. The dividend yield is 0.04 (4% per annum). In some later tasks, you also encounter the “equivalent” American option.

Required method:
Use the finite difference method to value the (plain-vanilla) American put option. I leave it up to you to decide whether you want to use the implicit or explicit method. Motivated groups may consider using both and comparing outcomes. I also leave it up to you how many stock price- and time-steps you use in your grid (but go for more than used in the lecture). I would, however, advise you to simulate the stock price, not the log of the stock price – that’s more intuitive and thus a lot easier.

Show the calculation process in the essay and describe what you do, report your results and comment your results. Numbers should be rounded to two or three digits.

Sample Solution

Feng shui is an old Chinese rationality about how people and their surroundings cooperate and have connections. It incorporates the rule that everything has vitality and is associated with everything else. It is stemmed in the conviction that dependent on laws of nature, standards, hypotheses and methods we can see how to make a situation that enables us to be in amicability and parity. It additionally can control us to improve certain parts of our lives. The fundamental rule of feng shui is chi or vitality. It is a feng shui rule that is utilized through all of life. It interfaces the vitality of everything together. There can be chi or vitality of earth, the air and individuals. We can see the nature of chi communicated through regions of shading, frame, shape, sound and the different cycles in nature. Feng shui standards work to guarantee that the chi is permitted to continue streaming and not stall out or exhausted. In feng shui standards, there are two primary kinds of feng shui that we have to consider. One of these is physical and contains the genuine structures, environment, structures, streets and plan. Alternate includes directional impacts that in spite of the fact that are imperceptible, still have an effect on our lives and how we identify with existence. We have to take both feng shui standards into thought while assessing the chi characteristics of a domain. As indicated by feng shui, if a zone in the earth isn't being helpful for giving great chi, there are fixes or settles that we can use to restore the chi to a characteristic solid state and keep on streaming all through the space. We can settle or address the feng shui of a region by making little or enormous alterations and applying feng shui procedures. These strategies fuse the utilization of various components to make equalization and concordance.

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