Question
In: Finance
A stock price is currently $40. Over each of the next two 3-month periods it is...
A stock price is currently $40. Over each of the next two 3-month periods it is expected to go up by 10% or down by 10%. The risk-free interest rate is 12% per annum withcontinuous compounding.
(a) What is the value of a 6-month European put option with a strike price of $42? (b) What is the value of a 6-month American put option with a strike price of $42?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
A stock price is currently $40. Over each of the next two three-month periods it is...
A stock price is currently $40. Over each of the next two
three-month periods it is expected to go up by 10% or down by 10%
(meaning, precisely, if the stock price at the start of a period is
$40, it will go to $40*1.1=$44 or to $40*0.9=$36 at the end of the
period and if the stock price at the start of a period is $44, it
will go to $44*1.1=$48.44 or to $44*0.9=$39.6 at the end of the...
6.8. A stock price is currently $40. Over each of the next two three-month periods it...
6.8. A stock price is currently $40. Over each of the next two
three-month periods it is expected to go up by 10% or down by 10%.
The risk-free interest rate is 12% per annum with continuous
compounding. a. What is the value of a six-month European put
option with a strike price of $42? b. What is the value of a
six-month American put option with a strike price of $42?
A stock price is currently $50. Over each of the next two 3-month periods it is...
A stock price is currently $50. Over each of the next two
3-month periods it is expected to go up by 6% or down by 5%. The
risk-free interest rate is 5% per annum with continuous
compounding.
(a) What is the value of a 6-month European put option with a
strike price of $51? (b) What is the value of a 6-month American
put option with a strike price of $51?
A stock price is currently Ksh40. Over each of the next two 3-month periods it is...
A stock price is currently Ksh40. Over each of the next two
3-month periods it is expected to go up by 10% or down by 10%. The
risk-free interest rate is 12% per annum with continuous
compounding. Suppose that the volatility σ is 9.53% and ∇
is 0.25.
What is the value of a 6-month European put option with a
strike price of Ksh42?
ii. What is the value of a 6-month American call option with a...
A stock price is currently $50. Over each of the next two 3-month periods it is...
A stock price is currently $50. Over each of the next two
3-month periods it is expected to go up by 6% or down by 5%. The
risk-free rate is 5% per annum with continuous compounding. What is
the value of a six-month European call option with a strike price
of $51?
A stock price is currently $50. Over each of the next two 3-month periods it is...
A stock price is currently $50. Over each of the next two
3-month periods it is expected to go up by 6% or down by 5%. The
risk-free rate is 5% per annum with continuous compounding. What is
the value of a six-month European call option with a strike price
of $51? 4
Calculate the price of the put option in problem 3 if it was
American.
A stock price is currently $100. Over each of the next two three-month periods it is...
A stock price is currently $100. Over each of the next two
three-month periods it is expected to go up by 8% or down by 7%.
The risk-free interest rate is 5% per annum with continuous
compounding. What is the value of a six-month European call option
with a strike price of $95?
A stock price is currently $130. Over each of the next two four-month periods it is...
A stock price is currently $130. Over each of the next two
four-month periods it is expected to go up by 15% or down by 10%.
The risk-free interest rate is 8% per annum with continuous
compounding. (All calculations keep four digits after the decimal
point)
1. What is the value of an eight-month European call option with a
strike price of $133?
2. What is the value of an eight-month American put option with a
strike price of $133?
A stock price is currently $100. Over each of the next two six-month periods it is...
A stock price is currently $100. Over each of the next two
six-month periods it is expected to go up by 10% or down by 10%.
The risk-free interest rate is 8% per annum with continuous
compounding. What is the value of a one-year European call option
with a strike price of $100 using a two-step Binomial tree? (Draw
the tree)
A stock price is currently $100. Over each of the next two six-month periods, it is...
A stock price is
currently $100. Over each of the next two six-month periods, it is
expected to go up by 10% or down by 10%. The risk-free interest
rate is 10% per year with semi-annual compounding.
Based on no
arbitrage principle and riskless portfolio we can construct along
the above binomial tree, briefly discuss how we can hedge risk if
we write a European put option with an exercise price of $101 and
1-year maturity.
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