Question

In: Finance

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

Solutions

Expert Solution

Correct answer: A. 0.135

Put credit spread: Sell Put with higher strike price and Buy Put with lower strike price

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

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
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...
6. You’re given with the following information for the bank’s stock portfolio. Suppose that there are...
6. You’re given with the following information for the bank’s stock portfolio. Suppose that there are three mutually independent funds in your portfolio. The standard deviations of these fund are provided in the following table 1.                                                               Table 1:                                      Asset      (in %) Fund 1     3.4086 Fund 2     2.975 Fund 3     4.7056 Answer the following questions: a) Suppose your allocations for the portfolio are given as 1/6 for asset one, 1/3 for asset two, 1/2 for asset three, what is the...
   6. Suppose that the following information is given (Yd is disposable income): C= 100 +...
   6. Suppose that the following information is given (Yd is disposable income): C= 100 + (.75)(Y-T) G= 250 I= 150 t= 20% M= .15Yd a) What would be the effect on output of a $50 increase in government spending? Show your work. b) What if the marginal propensity to import was to increase. What would be the effect on output? Describe why it would affect economic activity. c) What would be the effect on the equilibrium level of output...
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...
r4s2 + cos(rs)2+ sec (r + s) = 5 Suppose that s is a function of...
r4s2 + cos(rs)2+ sec (r + s) = 5 Suppose that s is a function of r. 1)Find d/dr s of the following function: 2)Suppose further that r is a function of q. Find d/dq s2
Suppose that you are given the following information about the stock price/dividends for a company: Year...
Suppose that you are given the following information about the stock price/dividends for a company: Year Beginning of Year Price Dividend Paid at Year-End 2016 $80 $3 2017 $85 $4 2018 $78 $2 2019 $82 $2 If the company's stock price is $85 per share at the end of 2019, what is the arithmetic average return for an investment in XYZ over the period? What is the geometric average return for an investment in XYZ over the period? (Do not...
Use the following information to answer the first 5 questions: Suppose we wanted to estimate the...
Use the following information to answer the first 5 questions: Suppose we wanted to estimate the average age of a certain group of divorced men during 1988 and took a random sample of (n = ) 100 giving us x =35.2 years old. this is the symbol that represents the average age of the population this is the amount of people in the sample this is the average age found from our sample this is the symbol we use to...
SOLVE THE FOLLOWING USING STATISTICAL SOFTWARE R, POST YOUR CODE: PROBLEM 1. Suppose we have 100...
SOLVE THE FOLLOWING USING STATISTICAL SOFTWARE R, POST YOUR CODE: PROBLEM 1. Suppose we have 100 independent draws from some population distribution whose shape is unknown but where the population mean is 10 and SD is 2.5. Suppose tha tn=100 is sufficiently large that for the sample mean to have an approximately normal distribution. (a) What is the chance that the sample mean is within 0.1 units of the population mean? (b) What is the chance that the sample mean...
You are given the following information from your boss: Stock Bond E(r.) - Port Stan. Dev....
You are given the following information from your boss: Stock Bond E(r.) - Port Stan. Dev. Sharpe Ratio 100% 0% 8.00% 15.00% 0.400 80% 20% 7.20% 12.70% 0.409 60% 40% 6.40% 11.01% 0.399 40% 60% 5.60% 10.25% 0.351 20% 80% 4.80% 10.62% 0.264 0% 100% 4.00% 12.00% 0.167 Min Var. 36.36% 63.64% 5.45% 10.23% 0.338 Optimal 77.2% 22.8% 7.09% 12.42% 0.410 The information was calculated assuming a 2% risk free rate and a 0.20 correlation co-efficient. Assume your client would...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT