Question
A stock is currently trading at 50. The risk free interest rate is 4%. In one...
A stock is currently trading at 50. The risk free interest rate is 4%. In one year, analysts believe that share price will either be 58 or 36.
a) Using both the Delta (Binomial) method and the Risk Neutral method, find the value of a 1-year Put option with strike price 42.
b) What is the intrinsic value of the option? The time value?
c) What would the value of a Call with the same strike price and maturity be?
Homework Answers
Answer #1
Dear Reader
The concept tested is binomial model.
Happy Reading ✌️
Stay Safe!
Not the answer you're looking for?
Similar Questions
1. Luther Industries is currently trading for $28 per share. The stock pays no dividends. A...
1. Luther Industries is currently trading for $28 per share. The
stock pays no dividends. A one-year European put option on Luther
with a strike price of $30 is currently trading for $2.55. If the
risk-free interest rate is 6% per year, compute the price of a
one-year European call option on Luther with a strike price of
$30.
The price of one-year European call option on Luther
with a strike price $30 is ______$ (round to four
decimal places)....
ABC stock is currently trading at $100. In the next period, the price will either go...
ABC stock is currently trading at $100. In the next period, the
price will either go up by 15% or down by 10%. The risk-free rate
of interest over the period is 5%. Consider a call and a put option
with $100 strike price with one-year maturity. Which of the
following statement is false based on one
period binomial option pricing model?
choices:
The synthetic call would include borrowing $48.86 at risk-free
rate
The synthetic put would include investing $41.62...
38. Calvin Industries is currently trading for $27 per share. The stock pays no dividends. A...
38. Calvin Industries is currently trading for $27 per share.
The stock pays no dividends. A one-year European put option on
Calvin with a strike price of $30 is currently trading for $2.60
and a one-year European call option on Calvin with the same strike
price and remaining time to maturity as the European put is trading
for $1.30. The annual risk-free rate comes closest to: A) 5.7%. B)
5.8% C) 5.9% D) 6% Ans: D
ABC stock is currently trading at $100. In the next period, the price will either go...
ABC stock is currently trading at $100. In the next period, the
price will either go up by 15% or down by 10%. The risk-free rate
of interest over the period is 5%. Consider a call and a put option
with $100 strike price with one-year maturity. Which of the
following statement is false based on one
period binomial option pricing model?
Group of answer choices
The synthetic put would include 0.6 unit of short underlying
asset
The synthetic call...
A stock price is currently $50. It is known that at the end of 3 months...
A stock price is currently $50. It is known that at the end of 3
months it will be either $50 or $48. The risk-free interest rate is
10% per annum with continuous compounding. What is the value of a
3-month European put option with a strike price of $49? How about a
6-month European call price? (Hint: 2 period binomial option
pricing)
(Derivatives & Risk Management - BOPM: Binomial Options Pricing Model) EVEN PARTIAL ANSWERS APPRECIATED if unable...
(Derivatives & Risk Management - BOPM: Binomial
Options Pricing Model)
EVEN PARTIAL ANSWERS APPRECIATED if unable to provide an
entire answer
CONSIDER THE FOLLOWING STOCK
A stock is currently priced at $40. (S)
At the end of the month, it
will be either $42 (Su ) or $38
(Sd)
The risk-free rate is 8%
(r)
Price of a call option = 1.69 (f)
(i.e. expected value of payoff)
Delta = 0.75 and =
$28.50 in arb model
p = 0.5669 in...
Suppose a stock is currently trading at 92 and the annual risk free rate is 0.0018....
Suppose a stock is currently trading at 92 and the annual risk
free rate is 0.0018.
What is the price of a call option on this stock with an
expiration date T = 0.5 (times in years) and with an exercise price
K = 98. Assume the volatility of annual log return is sd = 0.2
What is the price of a put option on the same stock with the
same parameters
A stock index currently stands at 300 and has a volatility of 20%. The risk-free interest...
A stock index currently stands at 300 and has a volatility of
20%. The risk-free interest rate is 8% and the dividend yield on
the index is 3%.
Use the Black-Scholes-Merton formula to calculate the price of
a European call option with strike price 325 and the price of a
European put option with strike price of 275. The options will
expire in six months.
What is the cost of the range forward created using options in
Part (a)?
Use...
Consider a European-style call option on a stock that is currently trading at £100. The strike...
Consider a European-style call option on a stock that is
currently trading at £100. The strike price of the call is £90.
Assume that, in the next 12 months, the stock price can either go
up to £120 or go down to £80. Using risk-neutral valuation,
calculate the current value of the option if the risk-free rate is
5 percent per annum. Use discrete compounding. Which of the
following is correct?
A. £18
B. £18.5
C. £18.75
D. £19
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 6 minutes ago
asked 10 minutes ago
asked 13 minutes ago
asked 17 minutes ago
asked 43 minutes ago
asked 44 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 2 hours ago
asked 2 hours ago