Question

In: Finance

The price of a three-month future contract on the S&P 500 index is traded at 2355....

The price of a three-month future contract on the S&P 500 index is traded at 2355. Use a 9 step binomial tree model to value an American put on the future contract assuming K=2400, r=1%, s=15%. The price of the American put option is ___________.

Solutions

Expert Solution

The price of the American put option using  9 step binomial tree model is $92.0724

T=0.25 years

=15%=0.15

Rf = 1% = 0.01

= $2355

Size of one up move = (0.25/9)= 0.0277 years

Upmove factor U = = e^(0.15*(0.0277)^0.5) = 1.0252

Downmove factor = = 0.9754

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

The price of a three-month future contract on the S&P 500 index is traded at 2355....
The price of a three-month future contract on the S&P 500 index is traded at 2355. Use a 9 step binomial tree model to value an American put on the future contract assuming K=2400, r=1%, s=15%. The price of the American put option is ___________.
Consider a three month futures contract on the S&P 500 index. The value of the index...
Consider a three month futures contract on the S&P 500 index. The value of the index is 1000; the dividend yield is 1% and the three month interest rate is 4% continuously compounded. (a) Explain how to compute the futures price making sure to define all terms and assumptions. In particular carefully explain why the formula holds. Then compute the fair futures price. (b) Suppose the actual futures price is 1010.0. In great detail describe a strategy that creates guaranteed...
Assume that we are pricing a four month contract on the S & P 500 index...
Assume that we are pricing a four month contract on the S & P 500 index that provides a continuous dividend yield of 5% per annum. Its current index value is 1350. The risk free rate is currently 5.5% for all maturities. a. Calculate the futures price for a nine month contract on the index. b. Under what circumstances would the spot and futures prices be equal to one another? c. How does settlement of an index contract differ from...
​​​​​​ For the following questions the price of an S&P 500 Index Futures contract equals 250...
​​​​​​ For the following questions the price of an S&P 500 Index Futures contract equals 250 ∙ Current S&P 500 Index Value. The margin requirement on each contract is $20,000. Please answer the following questions: At Yahoo! Finance identify the last traded value for the S&P 500 Index and the date it was last retrieved: Last Traded S&P 500 Index Value Date At the CME Group site obtain the next four quarterly S&P 500 Index Futures quotes: Month/Year Last Price...
A. A six-month S&P 500 index call option has an exercise price of 1,500. The holder...
A. A six-month S&P 500 index call option has an exercise price of 1,500. The holder of the option exercises the call when the index is at 1,520. The settlement procedure for the S&P 500 index option requires the writer of the option to ____________ to the holder of the option. a. deliver an S&P 500 index ETF b. make a payment of 20 times $100 c. make a payment of $1,520 d. make a payment of 1,520 times $10...
The margin requirement on the S&P 500 futures contract is 10%, and the stock index is...
The margin requirement on the S&P 500 futures contract is 10%, and the stock index is currently 1,200. Each contract has a multiplier of $250. a. How much margin must be put up for each contract sold? Margin            $    b. If the futures price falls by 2% to 1,176, what will happen to the margin account of an investor who holds one contract? (Input the amount as a positive value.) Margin account (Click to select)increasesdecreases by $ . c-1. What...
The S & P 500 is a collection of 500 stocks of publicly traded companies. Using...
The S & P 500 is a collection of 500 stocks of publicly traded companies. Using data obtained from Yahoo!Finance, the monthly rates of return of the S & P 500 from 1950 through 2015 are normally distributed. The mean rate of return is 0.007443 and the standard deviation is 0.04135.   What is the probability that a randomly selected month has a positive rate of return? That is, what is P(X > 0)? a. 0.36 b. 0.68 c. 0.50 d....
) A call option on an S&P 500 futures contract has an exercise price of 1490;...
) A call option on an S&P 500 futures contract has an exercise price of 1490; the call premium is currently $6.50. On the same date, a put option on the S&P 500 futures contract has an exercise price of 1490; the put premium is currently $7.50. The two options have the same expiration date. Is the current index value greater than or less than 1490. How do you know? Assume that the S&P 500 index is 1485 at expiration:...
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...
The S&P 500 Index price is $1975.12 and its annualized dividend yield is 2.20%. The annual...
The S&P 500 Index price is $1975.12 and its annualized dividend yield is 2.20%. The annual LIBOR is 3.5% and is refered as the benchmark interest rate. Assuming annual compounding, how many futures contracts will you need to hedge a $30 million portfolio with a beta of 0.95 for one year? A. 59 B. 61 C. 56 D. 57 Consider a $70 million semiannual-pay floating-rate equity swap initiated when the equity index is 1987 and 180-day LIBOR is 2.2%. After...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT