a. Malmentier SA stock is currently priced at $65, and it does not pay dividends. The...

a.

Malmentier SA stock is currently priced at $65, and it does not pay dividends. The instantaneous risk-free rate of return is 7%. The instantaneous standard deviation of Malmentier SA stock is 30%. You want to purchase a put option on this stock with an exercise price of $70 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold __________ shares of stock per 100 put options to hedge your risk.

b.

The binomial option price approaches the Black Scholes price when ____________.

Expert Solution

Delta of call is N(d1)=0.2261
Delta of put=N(d1)-1=0.2261-1=-0.7739

You should hold -Delta*Number of puts=-(-0.7739*100)=77 shares

The binomial option price approaches the Black Scholes price when the number of subintervals increases substantially

jeff jeffy answered 1 year ago

Malmentier SA stock is currently priced at $55, and it does not pay dividends. The instantaneous...

Malmentier SA stock is currently priced at $55, and it does not pay dividends. The instantaneous risk-free rate of return is 5%. The instantaneous standard deviation of Malmentier SA stock is 40%. You want to purchase a put option on this stock with an exercise price of $60 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold __________ shares of stock per 100 put options to hedge your risk. 36 40 75 80

19) Malmentier SA stock is currently priced at $90, and it does not pay dividends. The...

19) Malmentier SA stock is currently priced at $90, and it does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Malmentier SA stock is 30%. You want to purchase a put option on this stock with an exercise price of $95 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold ____ shares of stock per 100 put options to hedge your risk. 31 35 70...

The current stock price is $65 and it will pay $3 dividends in 1 month and...

The current stock price is $65 and it will pay $3 dividends in 1 month and 4 months. A European at-the-money put option with 5 months to maturity is traded for $6.A European at-the-money call option with 5 months to maturity is $5. The spot rate for 1, 4, 5 months are 13%,11% and9.5%(c.c). 1.Is there an arbitrage opportunity? If yes describe the investment strategy that pays off today and has for sure zero cash flows at any time in...

A stock currently sells for $80, and it will pay no dividends in the future. Consider...

A stock currently sells for $80, and it will pay no dividends in the future. Consider a 2-year forward contract on this stock. The forward price is $90. The risk-free rate is 3% per annum. Is there an arbitrage? If so, show the arbitrage strategy using a table listing asset positions and cash flows.

The current stock price of Alcoa is $115, and the stock does not pay dividends. The...

The current stock price of Alcoa is $115, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoa's stock is 35%. You want to purchase a put option on this stock with an exercise price of $120 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold __________ shares of stock per 100 put options to hedge your risk.

Lincoln Motors does not pay dividends currently but plans to pay its first dividend of $1.00...

Lincoln Motors does not pay dividends currently but plans to pay its first dividend of $1.00 three years from today (D3). The dividend will grow at 10% in years 4 and 5 and after year 5 will grow at 3% forever. Find the price per share of Lincoln Motors if the required rate of return is 8%.

Pera inc does not currently pay dividends. The company will start with an annual dividend of...

Pera inc does not currently pay dividends. The company will start with an annual dividend of $13 at the end of year 4 and will pay the same amount each year until year 8. Thereafter, it will increase the dividends by 2% per year forever. If the required rate of return on this stock is 8%, what is the price of this stock today?

Rochelle, Rochelle Partners stock currently trades at $23.27. It will pay dividends for the next four...

Rochelle, Rochelle Partners stock currently trades at $23.27. It will pay dividends for the next four years of $0.75 each year. In year 5 the dividend will grow by 20%, and it will grow by an additional 20% per year compounded for the three years after that (years 6-8) as well. Starting in year 9, the dividend growth rate will settle into a steady rate of growth which you forecast to remain constant indefinitely from that point forward. Assuming your...

The current stock price of Johnson & Johnson is $178, and the stock does not pay dividends. The instantaneous risk-

The current stock price of Johnson & Johnson is $178, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of J&J's stock is 30%. You want to purchase a put option on this stock with an exercise price of $171 and an expiration date 60 days from now. Assume 365 days in a year. With this information, you calculate the probability that a random draw from a standard normal distribution...

A stock will pay no dividends for the next 7 years. Then it will pay a...

A stock will pay no dividends for the next 7 years. Then it will pay a dividend of $9.62 growing at 4.31%. The discount rate is 11.34%. What should be the current stock price?

Question