Question

In: Accounting

Which portfolio of options will replicate a plain vanilla call option? a. An up-and-in barrier option...

Which portfolio of options will replicate a plain vanilla call option?

a.

An up-and-in barrier option call and a up-and-out barrier put option each with the same strike as the plain vanilla option.

b.

Barrier options can't be used to replicate a plain vanilla option.

c.

An up-and-in barrier option call and a up-and-out barrier call option each with the same strike as the plain vanilla option.

Solutions

Expert Solution

ekkarill92 answered 3 years ago
Next > < Previous

Related Solutions

Describe how you would replicate a plain vanilla stock call option using an asset-or-nothing option plus...
Describe how you would replicate a plain vanilla stock call option using an asset-or-nothing option plus a cash-or-nothing option. Assume that all three options are on the same underlying and have the same strike prices.
Find the limit of the Black-Scholes values of plain vanilla European call and put options as...
Find the limit of the Black-Scholes values of plain vanilla European call and put options as T → 0 and as T → ∞. You may assume q = 0.
Consider the following European plain vanilla options: (1) a call with strike price K = 160,...
Consider the following European plain vanilla options: (1) a call with strike price K = 160, (2) a put with strike price K = 160, (3) a call with strike price Kc = 165, and (4) a put with strike price Kp = 155. All options have the same non-dividend-paying underlying stock and mature after one year. Assuming current stock price 160, stock price volatility 22%, and continuously compounded risk-free interest rate 0.49%. Assume a long position in options (1)...
Consider the following European plain vanilla options: (1) a call with strike price K = 160,...
Consider the following European plain vanilla options: (1) a call with strike price K = 160, (2) a put with strike price K = 160, (3) a call with strike price Kc = 165, and (4) a put with strike price Kp = 155. All options have the same non-dividend-paying underlying stock and mature after one year. a) Assuming current stock price 160, stock price volatility 22%, and continuously compounded risk-free interest rate 0.49%, compute the prices of options (1)–(4)...
a. Explain how to create a synthetic portfolio to replicate a call option using Put-Call Parity....
a. Explain how to create a synthetic portfolio to replicate a call option using Put-Call Parity. Discuss the practical implications of this synthetic call. (3 mark) b. Use equations and symbols to derive the net investment for this synthetic portfolio at initiation (Date 0).                                                                                                                                                                  c. Use equations and symbols to derive the net positions of the portfolio at expiration (Date T) if (1) ST < X  ; (2) ST > X.  
Payoff/profit of put/call? Payoff diagrams recognition (plain vanilla or strategies/combo) Profit diagrams recognition (plain vanilla or...
Payoff/profit of put/call? Payoff diagrams recognition (plain vanilla or strategies/combo) Profit diagrams recognition (plain vanilla or strategies/combo) Put-call parity concept Strategies: concepts. Eg. What strategy consists of what. Relationship between option value and other factors
what determines the use and price of futures/forward and plain vanilla options
what determines the use and price of futures/forward and plain vanilla options
what determines the use and price of futures/forward and plain vanilla options
what determines the use and price of futures/forward and plain vanilla options
An investor has an option portfolio composed of 5,000 identical short call options. The call option’s...
An investor has an option portfolio composed of 5,000 identical short call options. The call option’s delta is 0.4. What does it mean intuitively that the delta is 0.4? How can the portfolio be made delta-neutral? How will the delta-neutral portfolio’s value change if there is a small (e.g. 0.1%) upward movement in the stock price? Will the delta-neutral portfolio’s value change if there is a large (e.g. 10%) upward movement in the stock price? If no, why not. If...
Roy constructs an options portfolio based on the MXC stock. He writes a call option with...
Roy constructs an options portfolio based on the MXC stock. He writes a call option with exercise price $74 and writes a put option with exercise price $70. Both options have the same expiration date.    MXC Call Option price $0.42 Exercise price $74 MXC Put $0.58 $70         Draw the payoff diagram of this portfolio at option expiration as a function of MXC stock price at that time. What will be the profit/loss on this position if MXC is...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT