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Option E The put option premium increases as time to maturity increases because there is greater chance of option expiring in the money
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QUESTION 5 6 points Save Answer Consider three at-the-money (ATM) European PUT options (i.e., S =...
QUESTION 4 6 points Save Answer Consider three at-the-money (ATM) European call options (i.e., S =...
QUESTION 4 6 points Save Answer Consider three at-the-money (ATM) European call options (i.e., S = X for each of them) written on the same underlying asset, with the following common parameter values: r=0% p.a. and 0 = 100% p.a. However, one of the options matures in T = 12 months, another in T = 24 months, and the last one matures in 36 months. Based on the premiums of these three call options, what do you conclude regarding the...
QUESTION 8 10 points Save Answer Consider two "corresponding" options, consisting of a call and a...
QUESTION 8 10 points Save Answer Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the current price of the underlying asset is $85, the options have an exercise price of $98 and they expire in 8 months. Additionally, the risk-free rate is 8% p.a. What is the difference between the premium of the put option, P, and the premium of the call option, C; that is, what is...
QUESTION 9 15 points Save Answer A European PUT option written on one share of Deadwood...
QUESTION 9 15 points Save Answer A European PUT option written on one share of Deadwood Lumber Co. stock has the following parameter values: S = $28, X = $30, r = 5% p.a., o = 20% p.a., T = 6 months. Find the premium of this option, rounded to 2 decimals (e.g., 1.15; do NOT include a dollar sign in your answer). NOTE: Use the continuous time version of the Black-Scholes and Put-Call Parity equations (i.e., do NOT use...
QUESTION 3 15 points Save Answer A European call option written on one share of Medident...
QUESTION 3 15 points Save Answer A European call option written on one share of Medident Corp. has the following parameter values: S = $220, X = $200, r = 5% p.a., sigma = 20% p.a., T 9 months. Find the call option's premium, rounded to 2 decimals (e.g., 3.24). Do NOT include the S sign in your answer; write only the numerical value. NOTE: Use the continuous time version of the Black-Scholes equation (i.e., do NOT use the book's...
Question 1 - 35 Points Consider a European put option on a non-dividend-paying stock where the...
Question 1 - 35 Points Consider a European put option on a non-dividend-paying stock where the stock price is $15, the strike price is $13, the risk-free rate is 3% per annum, the volatility is 30% per annum and the time to maturity is 9 months. Consider a three-step troc. (Hint: dt = 3 months). (a) Compute u and d. (b) Compute the European put price using a three-step binomial tree. (c) If the option in (b) is American instead...
QUESTION 8 Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. F...
QUESTION 8 Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the current price of the underlying asset is $96, the options have an exercise price of $87 and they expire in 7 months. Additionally, the risk-free rate is 4% p.a. What is the difference between the premium of the put option, P, and the premium of the call option, C; that is, what is the value of P...
6. The following table shows the premiums of European call and put options having the same...
6. The following table shows the premiums of European call and put options having the same underlying stock, the same time to expiration but different strike prices: StrikeCall Premium Put Premium $20 $23 $25 $3.59 $2.45 $1.89 $2.64 $4.36 $5.70 You use the above call and put options to construct an asymmetric butterfly spread with the following characteristics (i) The maximum payoff of 6 is attained when the stock price at expiration is 23 (ii) The payoff is strictly positive...
QUESTION 10 6 points Save Answer A put option expires $48 in the money, meaning that...
QUESTION 10 6 points Save Answer A put option expires $48 in the money, meaning that the option's payoff is $48. What is the payoff at expiration of the "corresponding" call option; that is, a call option with the exact same parameter values as the put option?
Question 5 (6 marks) A bank has written 1000 European call options and 2000 European put...
Question 5 (6 marks) A bank has written 1000 European call options and 2000 European put options on gold futures. The options mature in 3 months and have an exercise price of $1200/ounce. The futures contract underlying the options has a delivery in 4 months and a price of $1220/ounce. The volatility of the gold futures is 15% and the continuously compounded risk free rate is 4% per annun a) What initial position (buy/sell and number of units) is necessary...
QUESTION 7 8 points Save Answer Consider two "corresponding" options, consisting of a call and a...
QUESTION 7 8 points Save Answer Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the call premium is $4.5. If the current price of the underlying asset is $82 and the present value of the exercise price is $82, what is the premium of the put option, P? Write the answer with one decimal; e.g., 3.2. Do NOT use the S symbol in your answer; just write a...
QUESTION 4 6 points Save Answer Consider three at-the-money (ATM) European call options (i.e., S = X for each of them) written on the same underlying asset, with the following common parameter values: r=0% p.a. and 0 = 100% p.a. However, one of the options matures in T = 12 months, another in T = 24 months, and the last one matures in 36 months. Based on the premiums of these three call options, what do you conclude regarding the...
QUESTION 8 10 points Save Answer Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the current price of the underlying asset is $85, the options have an exercise price of $98 and they expire in 8 months. Additionally, the risk-free rate is 8% p.a. What is the difference between the premium of the put option, P, and the premium of the call option, C; that is, what is...
QUESTION 9 15 points Save Answer A European PUT option written on one share of Deadwood Lumber Co. stock has the following parameter values: S = $28, X = $30, r = 5% p.a., o = 20% p.a., T = 6 months. Find the premium of this option, rounded to 2 decimals (e.g., 1.15; do NOT include a dollar sign in your answer). NOTE: Use the continuous time version of the Black-Scholes and Put-Call Parity equations (i.e., do NOT use...
QUESTION 3 15 points Save Answer A European call option written on one share of Medident Corp. has the following parameter values: S = $220, X = $200, r = 5% p.a., sigma = 20% p.a., T 9 months. Find the call option's premium, rounded to 2 decimals (e.g., 3.24). Do NOT include the S sign in your answer; write only the numerical value. NOTE: Use the continuous time version of the Black-Scholes equation (i.e., do NOT use the book's...
Question 1 - 35 Points Consider a European put option on a non-dividend-paying stock where the stock price is $15, the strike price is $13, the risk-free rate is 3% per annum, the volatility is 30% per annum and the time to maturity is 9 months. Consider a three-step troc. (Hint: dt = 3 months). (a) Compute u and d. (b) Compute the European put price using a three-step binomial tree. (c) If the option in (b) is American instead...
QUESTION 8 Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the current price of the underlying asset is $96, the options have an exercise price of $87 and they expire in 7 months. Additionally, the risk-free rate is 4% p.a. What is the difference between the premium of the put option, P, and the premium of the call option, C; that is, what is the value of P...
6. The following table shows the premiums of European call and put options having the same underlying stock, the same time to expiration but different strike prices: StrikeCall Premium Put Premium $20 $23 $25 $3.59 $2.45 $1.89 $2.64 $4.36 $5.70 You use the above call and put options to construct an asymmetric butterfly spread with the following characteristics (i) The maximum payoff of 6 is attained when the stock price at expiration is 23 (ii) The payoff is strictly positive...
QUESTION 10 6 points Save Answer A put option expires $48 in the money, meaning that the option's payoff is $48. What is the payoff at expiration of the "corresponding" call option; that is, a call option with the exact same parameter values as the put option?
Question 5 (6 marks) A bank has written 1000 European call options and 2000 European put options on gold futures. The options mature in 3 months and have an exercise price of $1200/ounce. The futures contract underlying the options has a delivery in 4 months and a price of $1220/ounce. The volatility of the gold futures is 15% and the continuously compounded risk free rate is 4% per annun a) What initial position (buy/sell and number of units) is necessary...
QUESTION 7 8 points Save Answer Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the call premium is $4.5. If the current price of the underlying asset is $82 and the present value of the exercise price is $82, what is the premium of the put option, P? Write the answer with one decimal; e.g., 3.2. Do NOT use the S symbol in your answer; just write a...
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