15 Initial stock price. S 0Interest rate.r7 Exercise price. K8 Time to maturity. Ilyea)10 Stock price111215161718 Put option price1924263081838528 Finding ???-1 for the put36371314555720 The put replicating portfolio#1 Solve equations for mun12 Coefficients55583535 Put price 777-1171819 Finding ???-2 for the put5051236Date 078ngUpDownDate 05051 The put replicating portfolio52 Solve equations for min53 Coefficients36???-091mStock pricePut option pricePut price ???-2Put price ???-0Stock pricePut option priceFinding ???-0 for the put8182 The put replicating portfolio83 Solve equations for mn34 Coefficients222-1222-2Stock pricePut option price222-0Date 1222-1???-230%-10%Date 1ConstantConstantConstantTHREE-DATE BINOMIAL OPTION PRICING1006%110M MnDate 2mnDate 2nmBand priceBand priceBand priceBand priceDate 0Date 1WDate 2

Option Market is a Stock Market Strategy. Under which investor will not purchase the shares of the…

Initial stock price. S 0 interest rate.r Exercise price. K Time to matulty. Tiyeam) Stock price Date 0 Put option price Date 0 Up Down ma Finding ???-1 for the put Put price ???-1 The put replicating portfolio Solve equations for mun Coefficients Stock price Put option price ma Finding ???-2 for the put Put price ???-2 Stock price The put replicating portfolio Solve equations formun Coefficients Put price 777-0 Put option price ma Finding 777-0 for the put Stock price Put option price 22.0 The put replicating portfolio Solve equations for m Coefficients Date 1 m.2 30% -10% Date 1 Constant Constant Constant 100 6% 110 M M Date 2 Date 2 m Bond price Bond price Bond price Band price Date 0 Date 1 M Date 2

Initial stock price. S 0 interest rate.r Exercise price. K Time to matulty. Tiyeam) Stock price Date 0 Put option price Date 0 Up Down ma Finding ???-1 for the put Put price ???-1 The put replicating portfolio Solve equations for mun Coefficients Stock price Put option price ma Finding ???-2 for the put Put price ???-2 Stock price The put replicating portfolio Solve equations formun Coefficients Put price 777-0 Put option price ma Finding 777-0 for the put Stock price Put option price 22.0 The put replicating portfolio Solve equations for m Coefficients Date 1 m.2 30% -10% Date 1 Constant Constant Constant 100 6% 110 M M Date 2 Date 2 m Bond price Bond price Bond price Band price Date 0 Date 1 M Date 2

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 5P

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Up (percentage of price change) Down (percentage of price change) Initial stock price, S_0 interest rate Exercise price Time to maturity-years (T) up(u) down(d) R Risk Neutral Probabilities Qu Qd Put option payoffs Put Price Price??? 40% -20% N8 25 8% 30 1 get formula
Assume the stock’s future prices of stock A and stock B as the following distribution State Future Price Stock A Future price Stock B 1 $10 $7 2 $8 $9 If the time 1 price of stock A is $6, and the time 1 price of stock B is $5. And C1 represents the time 1 price of claim on state 1, C2 represents the time 1 price of claim on state 2 Use the information about stock prices and payoffs to Find the time 1 price C1 and C2. Find the risk–free rate of return, obtained in this market.
QUESTION 2. Consider a stock valued So at time t = 0, and taking only two possible values S1 = S, or Si = S1 at time t = 1, with S, < I1. a) Compute the initial portfolio allocation (a, 3) of a portfolio made of a units of stock and $B in cash, hedging the call option with strike price K e [S,,3¡] and claim payoff Si – K if Si = 3ı C = (Si – K)* $0 if S = S1, at time t = 1. b) Show that the risky asset allocation a satisfies the condition a € [0, 1]. c) Compute the Superhedging Risk Measure SRMc' of the claim C = (S1 – K)+.
Finance (a) Consider a portfolio with a Delta of 100, a Gamma of -20, and a Vega of -10. There are two traded options available: Traded options 1 Traded options 2 Delta 0.2 -0.1 Gamma Vega 0.01 0.05 0.5 0.3 What position in the traded option and/or underlying stock would make the portfolio Gamma and Vega neutral? (Required: Show your work step by step)
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Q3: Given the following inputs: Interest rate Dividend rate 6.25 6.00 and the following option prices: Strike Price CallPrice Put Price 31.00 2.71 2.40 5.01 34.00 41.00 2.41 0.36 9.71 a) Construct an arbitrage portfolio.
Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7, respectively. What is the profit of a bull spread when stock price at maturity is above $35? Select one: a. -3 b. 0 C. 32 d. 2 e. 3 €
Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock (b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 a) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal…
Which one of the following stocks is correctly priced if the risk-free rate of return is 3.0 percent and the market risk premium is 7.5 percent? Expected Return 8.46% Stock A B с D E 0000С Stock A O Stock D Stock C O Stock E Beta 77 1.46 1.27 1.44 .95 Stock B 12.47 11.19 13.80 8.65
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Label the following for this diagram: a. Name of options payoff b. Identify whether positive or negative premium c. Identify breakeven point d. What is the profit or loss when stock price is S60 at maturity e. Suppose you have this options position, should you exercise your right (if any) assuming that the stock price is $60 at maturity? Option Payoffs and Profits Long put $40 $20 $0 Option Payoff Option Profit Exerche Price $20 S40 $20 $40 S60 $80. Stock Price At Maturity Payoff and Profit