- Joined
- 8/20/06
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Here is a cute little problem -
Assume you have a stock, currently trading at S=100.... Consider a perpectual (no maturity) american binary option that pays you $1 if the stock ever crosses 150... i.e. as soon as the stock crosses 150, you exercise and you get 1$
historical mu=10% per annum, historical vol=25% per annum and r=0
How much is the option worth ?
sp
Assume you have a stock, currently trading at S=100.... Consider a perpectual (no maturity) american binary option that pays you $1 if the stock ever crosses 150... i.e. as soon as the stock crosses 150, you exercise and you get 1$
historical mu=10% per annum, historical vol=25% per annum and r=0
How much is the option worth ?
sp
