Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Textbook Question
Chapter 21.1, Problem 2CC
Why don’t we need to know the probabilities of the states in the binominal tree in order to solve for the price of the option?
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Chapter 21 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 21.1 - What is the key assumption of the binomial option...Ch. 21.1 - Why dont we need to know the probabilities of the...Ch. 21.1 - Prob. 3CCCh. 21.2 - What are the inputs of the Black-Scholes option...Ch. 21.2 - What is the implied volatility of a stock?Ch. 21.2 - How does the delta of a call option change as the...Ch. 21.3 - What are risk-neutral probabilities? How can they...Ch. 21.3 - Does the binominal model or Black-Scholes model...Ch. 21.4 - Is the beta of a call greater or smaller than the...Ch. 21.4 - What is the leverage ratio of a call?
Ch. 21.5 - Prob. 1CCCh. 21.5 - The fact that equity is a call option on the firms...Ch. 21 - The current price of Estelle Corporation stock is...Ch. 21 - Using the information in Problem 1, use the...Ch. 21 - Suppose the option in Example 21.11 actually sold...Ch. 21 - Eagletrons current stock price is 10. Suppose that...Ch. 21 - What is the highest possible value for the delta...Ch. 21 - Hema Corp. is an all equity firm with a current...Ch. 21 - Consider the setting of Problem 9. Suppose that in...Ch. 21 - Roslin Robotics stock has a volatility of 30% and...Ch. 21 - Rebecca is interested in purchasing a European...Ch. 21 - Using the data in Table 21.1, compare the price on...Ch. 21 - Consider again the at-the-money call option on...Ch. 21 - Harbin Manufacturing has 10 million shares...Ch. 21 - Using the information on Harbin Manufacturing in...Ch. 21 - Using the information in Problem 1, calculate the...Ch. 21 - Prob. 23PCh. 21 - Prob. 24PCh. 21 - Calculate the beta of the January 2010 9 call...Ch. 21 - Consider the March 2010 5 put option on JetBlue...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- What is a real option? What are some types of real options?arrow_forwardCompare the binomial and Black-Scholes option pricing models. What are their differences and similarities? In what circumstances would you prefer one versus the other? Support your arguments using references.arrow_forwardCompare the binomial and Black-Scholes option pricing models. What are their differences and similarities? In what circumstances would you prefer one versus the other? Use real market data as well as academic references.arrow_forward
- Q. Discuss the factors that affect an option’s price?arrow_forwardWhat effect does Risk-free rate have on call option price?arrow_forwardWhat do you think about vanilla options as hedging market risk vehicle? In your answer please provide two examples of using vanilla options as hedging instrument.arrow_forward
- Real options can be analyzed using a scenarioapproach with decision trees or using the BlackScholes Option Pricing Model. What are the prosand cons of the two approaches? Is one procedure“better” than the other?arrow_forwardcan you draw a profit diagram of the portfolio above and state any assumptions that must be made. Also, is the cost of the portfolio positive?arrow_forwardWhat is the buy option?arrow_forward
- a) discuss the relationship between the up-factor (u), down-factor (d), risk-free rate (r), and binomial probability (p) in the binomial model. b) discuss the assumptions in Black-Scholes-Merton model (BSM) from memory. c) discuss the variables in the BSM formula and explain how they affect call option pricing. d) define historical volatility and implied volatility. e) demonstrate how to reduce risk with gamma hedging.arrow_forwardIn what circumstances would you use one of the available risk measurements used in Modern Portfolio Theory instead of another? What are the advantages and disadvantages of each?arrow_forwardDerive and critically evaluate the Cox, Ross and Rubinstein (1979) binomial option pricing model. In particular, you should discuss the role of no-arbitrage pricing and risk-neutral valuation.arrow_forward
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