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We consider a Black-Scholes model for the price (Xt)t20 of a risky asset, with continuous interest rate 0.05 per year, volatility o = 0.2 year = -1/2 and we take 1 r = 0.03 per year, expected return u Xo = 100 Gils. We look at a strap: it is a portfolio which is long 1 vanilla European put (payoff (payoff § = (K – XT)+) and long 2 vanilla European calls (payoff § = (XÃ − K)+), both with maturity T and strike K. Compute the value of the investment in the underlying assets in the replicating portfolio today for such a contract with maturity T = 1 year and K = 105 Gils. Give your answer(s) with 2 decimal digits. По Gils.

We consider a Black-Scholes model for the price (Xt)t20 of a risky asset, with continuous interest rate 0.05 per year, volatility o = 0.2 year = -1/2 and we take 1 r = 0.03 per year, expected return u Xo = 100 Gils. We look at a strap: it is a portfolio which is long 1 vanilla European put (payoff (payoff § = (K – XT)+) and long 2 vanilla European calls (payoff § = (XÃ − K)+), both with maturity T and strike K. Compute the value of the investment in the underlying assets in the replicating portfolio today for such a contract with maturity T = 1 year and K = 105 Gils. Give your answer(s) with 2 decimal digits. По Gils.

Advanced Engineering Mathematics
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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- We consider a Black-Scholes model for the price (Xt)t20 of a risky asset, with continuous interest rate r = 0.03 per year, expected return u 0.05 per year, volatility o = = 0.2 year-¹/2, and we take Xo = 100 Gils. We look at a strap : it is a portfolio which is long 1 vanilla European put (payoff (payoff § = (K – XÃ)+) and long 2 vanilla European calls (payoff § = (XÃ − K)+), both with maturity T and strike K. Compute the value of the contract with maturity T investment in the underlying assets in the replicating portfolio today for such a = 105 Gils. = 1 year and K Give your answer(s) with 2 decimal digits. По - Gils.
Transcribed Image Text:- We consider a Black-Scholes model for the price (Xt)t20 of a risky asset, with continuous interest rate r = 0.03 per year, expected return u 0.05 per year, volatility o = = 0.2 year-¹/2, and we take Xo = 100 Gils. We look at a strap : it is a portfolio which is long 1 vanilla European put (payoff (payoff § = (K – XÃ)+) and long 2 vanilla European calls (payoff § = (XÃ − K)+), both with maturity T and strike K. Compute the value of the contract with maturity T investment in the underlying assets in the replicating portfolio today for such a = 105 Gils. = 1 year and K Give your answer(s) with 2 decimal digits. По - Gils.
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