Question
In: Finance
(A) A stock price is currently AUD 40 and it is known that at the end...
(A) A stock price is currently AUD 40 and it is known that at the end of three months it will be either AUD 44 or AUD 36. We are interested in valuing a European call option.
(ii) If the delta of the above European call is 0.25, what is the delta of the European put for the same strike and maturity?
(i) Using the risk-free rate of 12% per annum; Apply stock-option replicating portfolio strategy to value this European call option when the strike is AUD 42.
(B) A stock price is currently AUD 60; the risk-free rate is 5% and the volatility σ is 30%. What is the value of a two-year American put option with a strike price of AUD 62?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
A stock price is currently $40. It is known that at the end of one month...
A stock price is
currently $40. It is
known that at the end of one
month it will be either
$42 or $38. The
risk-free interest rate
is 8% per annum
with continuous compounding.
Use put-call parity to solve the value of the corresponding
put option.
: A stock price is currently $60. It is known that at the end of eight...
: A stock price is currently $60. It is known that at the end of
eight months it will be either $65 or $55. The risk-free interest
rate is 8% per annum with continuous compounding. (1) What is the
value of an eight-month European put option with a strike price of
$60? (2) Verify that no-arbitrage arguments and risk-neutral
valuation arguments give the same answers.
A stock price is currently $50. It is known that at the end of one year...
A stock price is currently $50. It is known that at the end of
one year it will be either $40 and $60. The exercise price of a
one-year European call option is $55. The risk-free interest rate
is 5% per annum.
Construct a binomial tree to show the payoff of the call option
at the expiration date. (5%)
Based on the binomial tree model, what is the value of the call
option? (15%)
Address the relation between the binomial...
A stock price is currently $50. It is known that at the end of one year...
A stock price is currently $50. It is known that at the end of
one year it will be either $40 and $60. The exercise price of a
one-year European call option is $55. The risk-free interest rate
is 5% per annum.
a. Construct a binomial tree to show the payoff of the call
option at the expiration date.
b. Based on the binomial tree model, what is the value of the
call option?
c. Address the relation between the...
A stock price is currently $50. It is known that at the end ofone year...
A stock price is currently $50. It is known that at the end of
one year it will be either $40 and $60. The exercise price of a
one-year European call option is $55. The risk-free interest rate
is 5% per annum. Construct a binoamial tree to show the payoff of
the call option at the expiration date. (5%) Based on the binomial
tree model, what is the value of the call option? (15%) Address the
relation between the binomial...
A stock price is currently $50. It is known that at the end of one year...
A stock price is currently $50. It is known that at the end of
one year it will be either $40 and $60. The exercise price of a
one-year European call option is $55. The risk free interest rate
is 5% per annum.
a. construct a binomial tree to show the payoff of the call
option at the expiration date.
b. based on the binomial tree model, what is the value of the
call option?
c. Address the relation between...
a) (13 pts) A stock price is currently $49. It is known that at the end...
a) (13 pts) A stock price is currently $49. It is known that at
the end of 6 months it will be either $57 or $42. The risk-free
rate of interest with continuous compounding is 11% per year.
Calculate the value of a 6-month European call option on the stock
with an exercise price of $48 using both the no-arbitrage arguments
and risk-neutral valuation arguments. Show that they provide the
same answers. b) (12 pts) Consider an option on a...
A stock price is currently $50. It is known that at the end of one month...
A stock price is currently $50. It is known that at the end
of one month it will be either $55 or $45. The risk-free interest
rate is 6% per annum with continuous compounding. What is the value
of a one-month European call option with a strike price of
$48?
The stock price is currently $70. It is known that at the end of three months...
The stock price is currently $70. It is known that at
the end of three months it will be either $72 or $68. The risk-free
interest rate is 10% per annum with continuously
compounding.
1. What is the value of a three-month European call
option with a strike price of $70 using the no-arbitrage
argument?
2. What is the value of a three-month European call
option with a strike price of $70 using the risk-neutral
valuation?
A stock price is currently $80. It is known that at the end of four months...
A stock price is currently $80. It is known that at the end of
four months it will be either $75 or $88. The risk free rate is 6
percent per annum with continuous compounding. What is the value of
a four–month European put option that is currently $1
out-of-the-money? Use no-arbitrage arguments.
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