Question
In: Finance
Consider a portfolio that consists of buying a call option on a stock and selling a...
Consider a portfolio that consists of buying a call option on a stock and selling a put option. The stock pays continuous dividends at the yield rate of 5%. The options have a strike of $62 and expire in six months. The current stock price is $60 and the continuously compounded risk-free interest rate is 15%. Find the elasticity of this portfolio.
Solutions
Expert Solution
The Delta of the portfolio
= DELTA of Call option (62) - DELTA of Put option (62)
= exp(-delta*t) = exp(-0.05*0.5) = 0.97531
Value of the portfolio
= Call option (62) - Put option (62)
= Stock *exp(-delta*t) - K*exp(-r*t)
= 60*exp(-0.05*0.5) - 62*exp(-0.15*0.5) = 0.9985
Thus, the elasticity of the portfolio is:
(DELTA of the portfolio)*Stock /(Value of the portfolio) =
0.97531*60/0.9985 = 58.606
jeff jeffy answered 2 years agoRelated Solutions
Assume that a stock is selling at a price of $100. The 95 call option on...
Assume that a stock is selling at a price of $100.
The 95 call option on the stock sells for $5 and the 105 put
option sells for $8.
What is the intrinsic and time value on the 95 call and $105
put?
If the stock increases to $110, what will be the dollar and
percentage return on the call option. What will be the return on
the put option?
Assume that the investor writes a call option on the...
Assume that a stock is selling at a price of $100. The 95 call option on...
Assume that a stock is selling at a price of $100. The 95 call
option on the stock sells for $5 and the 105 put option sells for
$8.
What is the intrinsic and time value on the 95 call and $105
put?
If the stock increases to $110, what will be the dollar and
percentage return on the call option. What will be the return on
the put option?
Assume that the investor writes a call option on the...
a) A call option with a strike price of $68 on a stock selling at $82...
a) A call option with a strike price of $68 on a stock selling
at $82 costs $15.3. What are the call option’s intrinsic and time
values?
b) A put option on a stock with a current price of $37 has an
exercise price of $39. The price of the corresponding call option
is $2.85. According to put-call parity, if the effective annual
risk-free rate of interest is 4% and there are three months until
expiration, what should be the...
A bull spread strategy is created by buying a European call option on a stock with...
A bull spread strategy is created by buying a European
call option on a stock with a certain strike price and selling a
European call option on the same stock with a higher strike price.
Both options have the same expiration date. Suppose that an
investor buys for £3 a 3-month European call with a strike price of
£29 and sells for £1 a 3-month European call with a strike price of
£34.
What is the total payoff of this...
1. Consider the following options portfolio: You write a November 2017 expiration call option on stock...
1. Consider the following options portfolio:
You write a November 2017 expiration call option on stock Y with
exercise price of $80. You also write a November 2017 put option on
stock Y with exercise price of $75. Use the chart below to answer
the following:
Graph the payoff of this portfolio at expiration as a function
of the stock price at that time
What will be the profit/loss on this position if stock Y is
selling at $77 on...
Consider a European call option and a put option on a stock each with a strike...
Consider a European call option and a put option on a stock each
with a strike price of K = $22 and each expires in six months. The
price of call is C = $3 and the price of put is P = $4. The risk
free interest rate is 10% per annum and current stock price is S0 =
$20. Show how to create an arbitrage strategy and calculate the
arbitrage traders profit.
Lavender Berhad’s stock is currently selling at RM30. The call stock option with an exercise price...
Lavender Berhad’s stock is currently selling at RM30. The call
stock option with an exercise price of RM25 has 180 days to
expiration. The annual risk-free interest rate is 8%. The variance
has been estimated to be 40% per annum.
Assume: 365 days in a year
From the above information you
are required to answer the questions below:
determine the value of this call option based on Black-Scholes
model.
determine the corresponding value of put
option.
=When you...
A three-month call option on a stock is currently selling at $5. The current stock price...
A three-month call option on a stock is currently selling at $5.
The current stock price is $65, the strike price for the option is
$60. The risk - free rate is 10% p.a. for all maturities.
a.) Is there any opportunity for an arbitrageur? Explain
b.) Show the strategy how an arbitrageur can obtain the
arbitrage profit. What will the profit be? Show workings
URGENT ! Consider a call option on a stock, the stock price is $29, the strike...
URGENT !
Consider a call option on a stock, the stock price is $29, the
strike price is $30, the continuously risk-free interest rate is 5%
per annum, the volatility is 20% per annum and the time to maturity
is 0.25.
(i) What is the price of the option? (6 points)
(ii) What is the price of the option if it is a put? (6
points)
(iii) What is the price of the call option if a dividend of $2...
Consider a call option on a stock, the stock price is $23, the strike price is...
Consider a call option on a stock, the stock price is $23, the
strike price is $20, the continuously risk-free interest rate is 9%
per annum, the volatility is 39% per annum and the time to maturity
is 0.5.
(i) What is the price of the option? (6 points).
(ii) What is the price of the option if it is a put? (6
points)
(iii) What is the price of the call option if a dividend of $2
is expected...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- UNIX ONLY -- DIFFICULT LAB ASSIGNMENT This is an extremely difficult subject for me. Could you...
- Do you know why your credit card can be refused even though you are profitable?
- The Following Java expression: S/10 * 10 + 10 – S = C Show that this...
- Year Cash Flow 0 −$9,700 1 5,800 2 2,500 3 3,400 &nb
- In a two – story building, an exterior column is to be designed for a service...
- Explain the use of neural networking modeling in predictive analytics. Discuss a real-life example of where...
- Boarder line and antisocial disorder are perhaps the most research personality disorder.What are the most common...
ADVERTISEMENT