(c) Find the no-arbitrage price of a European call option on the share with strike K = 290 and expiry date T = 2. State your answer to three significant figures. (d) Use the put-call parity formula and your answer to (c) to find the no-arbitrage price of a European put option on the share with strike K = 290 and expiry da T = 2. State your answer to three significant figures. %3D

(c) Find the no-arbitrage price of a European call option on the share with strike K = 290 and expiry date T = 2. State your answer to three significant figures. (d) Use the put-call parity formula and your answer to (c) to find the no-arbitrage price of a European put option on the share with strike K = 290 and expiry da T = 2. State your answer to three significant figures. %3D

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Select all statements which are correct. The value of a European put option is increasing in the strike price. The value of a European call option is increasing in the strike price. The value of a European put option is increasing in the spot price. The value of a European call option is increasing in the spot price.
Using put-call parity, if the price of an At-the-Money Call option maturing in 1 day is $3.14, what is the price of an of an At-the-Money Put option maturing in 1 day (give an approximation)? A. $0.95 B. $2.86 C. $3.14 D.$3.26
i)identify, analyze and discuss the following characteristics of an American put option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. ii) analyze and discuss the following factors on an American put option: time to expiration, exercise price, interest rate, volatility, and dividends. iii) identify, analyze, and discuss the following characteristics of a European call option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. iv) analyze and discuss the following factors on a European call option: time to expiration, exercise price, interest rate,
Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, us $135 (up state) and dSo = $115 (down state). Required: = a. What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end- of-year stock prices, us $135 (up state) and dSo $115 (down state)? = = b. What do you conclude about the hedge ratio as the option becomes progressively more in the money? × Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-of-year stock prices, uso = $135 (up state) and dS = $115 (down state)? Note: Round your answers to 3 decimal places. Exercise Hedge Ratio Price $ 135 0.500 127 0.500 × 120 0.500 × $ 115 0.500 ×
Suppose that the current price of an asset is $100. After three months, there are two possible values for the asset price, and after six months there are three, as follows: S++ = 121 s+ = 110 So = 100 st- = 92 S- = 90 S-- = 81 The annual risk-free rate of interest is 2%.
26. Suppose an investor buy a European call option at price c, K is the strike price and ST is the spot price of the asset at maturity of the contract, when ( ),the investor will exercise the option.
find a formula for the price of European call option. if R=0 and S=(0)=X=1. Compute the price for U=0.01 and D=-0.19
Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.
Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $115 (down state). Required: What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $115 (down state)? What do you conclude about the hedge ratio as the option becomes progressively more in the money?
Which of the following five call options on the same underlying stock has the highest price? Possible Answers A 6-month 28-strike American call A 6-month 32-strike American call A l-year 28-strike American call A l-year 32-strike American call A l-year 28-strike European call
A) Does this model satisfy the no-arbitrage assumption? B) Calculate the risk-neutral probabilities of up and down movements in the share price. C) Determine the no-arbitrage price of a European call option on the share with strike price K=70 and expiry time T=2.
A European call option can be exercised a. any time in the future b. only on the expiration date c. if the price of the underlying asset declines below the exerciase price d. immediately after dividends are paid e. none of these.

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