Question

In: Finance

For a stock index, S = $100. sigma = 30%, r = 5%, Div = 3%,...

For a stock index, S = $100. sigma = 30%, r = 5%, Div = 3%, and T= 3. Let n = 3. Do not use the black scholes model but a binomial model. a. What is the price of a European call option with a strike of $95? b. What is the price of a European put option with a strike of $95? c. Now let S = $95, K = $100, sigma = 30%, r= 3%, and Div = 5%. (You have exchanged values for the stock price and strike price and for the interest rate and dividend yield.) Value both options again. What do you notice? Demonstrate analytically that this is not a coincidence?

Solutions

Expert Solution

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Assume S = $42, K = 45, div = 0, r = 0.04, sigma(volatility)= 0.48, and...
Assume S = $42, K = 45, div = 0, r = 0.04, sigma(volatility)= 0.48, and 80 days until expiration. What is the premium on a knock-out put option with a down-and-out barrier of $44? A) $2.13 B) $3.13 C) $3.47 D) $4.07 Answer: C need details of solution
5. Let S = $45, r = 3% (continuously compounded), d = 5%, s = 30%,...
5. Let S = $45, r = 3% (continuously compounded), d = 5%, s = 30%, T = 1.5. In this situation, the appropriate values of u and d are 1.27738 and 0.75972, respectively. Using a 2-step binomial tree, calculate the value of a $40-strike European call option. Use: Table 1: Table of the Standard Normal Cumulative Distribution Function ?(z): https://math.ucalgary.ca/files/math/normal_cdf.pdf a. $7.037 b. $8.305 c. $7.783 d. $8.141 e. $7.960
Suppose we are given the following information of a stock: S = 100, r = 5%,...
Suppose we are given the following information of a stock: S = 100, r = 5%, σ = 30%, and the stock doesn’t pay any dividend. Calculate the delta of a credit spread using two put options (strike price = $90 and $80) that matures in 0.5 year, based on BSM model. A. 0.135 B. -0.135 C. 0.337 D. -0.337
Suppose we are given the following information of a stock: S = 100, r = 5%,...
Suppose we are given the following information of a stock: S = 100, r = 5%, σ = 30%, and the stock doesn’t pay any dividend. Calculate the delta of a credit spread using two put options (strike price = $90 and $80) that matures in 0.5 year, based on BSM model. A. 0.135 B. -0.135 C. 0.337 D. -0.337
Q3. Consider the following data: S = 100; r = .08; s = .3 on the...
Q3. Consider the following data: S = 100; r = .08; s = .3 on the following two options: Call 1   Call 2 K = 100;     K = 90 T-t=90 days.      T-t=180 days. Price: 6.91 16.33 Delta: .58 .78 Gamma: .02 .0138 3.1 A trader just shorted 100 CBOE calls 2. Calculate the number of shares necessary to create a Delta Neutral position. 3.2 A trader just shorted 100 CBOE calls 2. Calculate the number of calls 1...
8. Suppose you are a market maker in S&R index forward contracts. The S&R index spot...
8. Suppose you are a market maker in S&R index forward contracts. The S&R index spot price is 1100, the risk-free rate is 5%, and the dividend yield on the index is 0. a. What is the no-arbitrage forward price for delivery in 9 months? b. Suppose a customer wishes to enter a short index futures position. If you take the opposite position, demonstrate how you would hedge your resulting long position using the index and borrowing or lending? c....
Use Black-scholes formula to calculate: Assume S = $62.50, σ = 0.20, r = 0.03, div...
Use Black-scholes formula to calculate: Assume S = $62.50, σ = 0.20, r = 0.03, div = 0.0, on a $60 strike call and 81 days until expiration. Given a delta = 0.7092, gamma = 0.0582, and theta = -0.0158, what is the approximate call price, using the delta, gamma, theta approach, after 1 day, assuming a $0.50 rise in the stock price? Show details.
The S&P 500, or simply the S&P, is a stock market index that measures the stock...
The S&P 500, or simply the S&P, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. define an adequate investment strategy, and select the assets they would invest to start with. -the potential customer profile specifications (SAP 500), -the portfolio objectives -the investment policies (strategic allocation) -The choice and justification of a benchmark -a trial portfolio based on the team investment guidelines -a brief evaluation on each...
Exhibit 5 Month Market Asset R Asset S 1 3% –5% 4% 2 –5% -6% 3%...
Exhibit 5 Month Market Asset R Asset S 1 3% –5% 4% 2 –5% -6% 3% 3 1% –4% 4% 4 –7% 8% 3% 5 6% –9% 4% Use Exhibit 5. The data gives the historic return over the past five months for the market portfolio and two assets: R and S. Which of the answers below best describes the historic beta (β) for R and S? A. βR < 0; βS = 0 B. βR > 0; βS >...
Because of the outbreak of Covid-19, the S&P 500 stock index fell over 30% from its...
Because of the outbreak of Covid-19, the S&P 500 stock index fell over 30% from its recent high level. At the same time, the volatility index of the S&P 500 (a measure of the market's expectation of 30-day forward-looking volatility) spiked from 14 to 80. Assume that in December 2019 (before the outbreak of the Covid-19) the expected growth rate of the index was 5%, the discount rate was 10%, and the risk-free rate of return was 3.5%. Also, assume...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT