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Create a spreadsheet modeling trajectories of geometric Brownian motion starting at 100 with growth rate 2 percent (it is also risk-free rate) and volatility 28 percent.

Then, make a spreadsheet that calculates European call maturing in 1 year with strike 100 on a stock having 1% CONTINUOUS DIVIDEND YIELD (Growth rate would be r-q =2%-1%) using Monte-Carlo method and using 20,000 trajectories with 250 steps per year in each trajectory.

Lastly, compare Monte-Carlo price with 20,000 trajectories to a theoretical model price. Calculate with 50,000 trajectories. Compare Monte-Carlo price with 50,000 trajectories to theoretical model price.

PLEASE SHOW CALCULATION, RESULT, EXPLANATION, AND CELL FORMULA WITHIN EXCEL

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92862595

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