Question
What would the price of a call option struck at 110% of the forward cost? (Hint:...
What would the price of a call option struck at 110% of the forward cost? (Hint: Recall risk neutral means you care only about expected payoffs. So just calculate a payoff and probability at the end of the tree.)
Homework Answers
Answer #1
Not the answer you're looking for?
Similar Questions
A call option with an exercise price of $110 has six months to the expiration date....
A call option with an exercise price of $110 has six months to
the expiration date.
Currently, the stock is sold at a price of $120. At the expiration
date, the underlying stock has
two possible ending prices: $150 or $105. The risk-free rate of
return is 8 percent per annum.
Calculate the price of this call option using binomial option
pricing model.
You are about to price a call option that has a strike price of $30 and...
You are about to price a call option that has a strike price of
$30 and a maturity of 9 months. You know the current risk-free rate
for all periods up to a year is 4.95% with continuous compounding,
the current stock price is $28.75, and the stocks volatility is
25%. Use CRR approach for u & d when needed. What is the
risk-neutral probability of the stock price moving up in a 30-step
tree? a. .4489 b. .4745 c....
A 3-month American call option on a stock has a strike price of $20. The stock...
A 3-month American call option on a stock has a strike price of
$20. The stock price is $20, the risk-free rate is 3% per annum,
and the volatility is 25% per annum. A dividend of $1 per share is
expected at the end of the second month. Use a three-step binomial
tree to calculate the option price.
The price of Apple is $197 today. Its annualized volatility in the past year is 20%....
The price of Apple is $197 today. Its annualized volatility in
the past year is 20%. Consider a call option expiring in 6 months
with strike price K=195. Assume the interest rate is 0.
(1) In a one-period binomial tree model, calculate the risk
neutral probability q, parameters u
and d. Recall that u = e?√? and d = e−?√?, where ? is the
annualized volatility and T is
period in years.
(2) Calculate the price of the call option...
Consider a stock (So=104) and a call option (K=104). Given that the stock's price could gain...
Consider a stock (So=104) and a call option (K=104). Given that
the stock's price could gain 10% over the next 6 months or lose 10%
over the next 6 months, you construct a riskless hedge portfolio
that is long Δ (delta) shares and short one call. The risk free
rate is 10% per annum. What is the RHP payoff? (Type just the
number in the response box to one decimal, without commas, dollar
signs or percent signs. Do not enter...
A stock price is currently $36. During each three-month period for the next six months it...
A stock price is currently $36. During each three-month period
for the next six months it is expected to increase by 9% or
decrease by 8%. The risk-free interest rate is 5%. Use a two-step
tree to calculate the value of a derivative that pays off
(max[(40-ST),0])2 where ST is the stock price
in six months.
What are the payoffs at the final nodes of the tree? [1
mark]
Use no-arbitrage arguments (you need to show how to set up...
You have just sold a call option on 100 shares of stock. The stock price $74...
You have just sold a call option on 100 shares of stock. The
stock price $74 and its volatility is 60% per annum. The strike
price of the option is $86 and it matures in 6 months. The
risk-free rate is 4% per annum compounded.
A) What position should you take in the stock for delta
neutrality?
B) Suppose after you set up the delta-neutral position, the
stock price suddenly jumps to 70. Would you buy or sell shares to...
In this question, you need to price options with various approaches. You will consider puts and...
In this question, you need to price options with various
approaches. You will consider puts and calls on a share.
Based on this spot price (36) and this strike price (38) as well
as the fact that the risk-free interest rate is 6% per annum with
continuous compounding, please undertake option valuations and
answer related questions according to following instructions:
Binomial trees:
Additionally, assume that over each of the next two four-month
periods, the share price is expected to go...
You have just sold a call option on 100 shares of stock. The stock price $74...
You have just sold a call option on 100 shares of stock. The
stock price $74 and its volatility is 60% per annum. The strike
price of the option is $86 and it matures in 6 months. The
risk-free rate is 4% per annum compounded.
A.) What position should you take in the stock for delta
neutrality?
B.) Suppose after you set up the delta-neutral position, the
stock price suddenly jumps to 70. Would you buy or sell shares to...
Replicating portfolios. A stock sells for $50 today. The risk-free rate over the period is 10%...
Replicating portfolios.
A stock sells for $50 today. The risk-free rate over the period
is 10% with annual compounding. Assume that next period (in one
year) the stock will either go up by 30% (to $65) with probability
0.7 or go down by 20% (to $40) with probability 0.3.
Suppose you own an out-of-the-money European call option on the
stock with a strike price X equal to the futures price for delivery
in one year.
In what follows, always use...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 7 minutes ago
asked 8 minutes ago
asked 10 minutes ago
asked 22 minutes ago
asked 48 minutes ago
asked 52 minutes ago
asked 52 minutes ago
asked 52 minutes ago
asked 53 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago