Homework Answers
A bear put spread is a type of vertical spread. It consists of buying one put in hopes of profiting from a decline in the underlying stock, and writing another put with the same expiration, but with a lower strike price, as a way to offset some of the cost.
The spread generally profits if the stock price moves lower. The
potential profit is limited, but so is the risk should the stock
unexpectedly rally. 
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(5) A bear spread consists of longing a put option struck at K2 and shorting another...
3. Consider the N-step binomial asset pricing model with 0 < d<1 A European bear-spread option...
3. Consider the N-step binomial asset pricing model with 0 < d<1 A European bear-spread option has payoff where Ki< K2 (a) Assume N- 3, So100, K-85, K2-100, 0.05,10, and d-0.90 Calculate the price at time zero, V, of the bear-spread option. (b) Specify how you can replicate the payoff of the European bear-spread option by investing in the stock and the bank account and verify that a short position in the European bear- spread option is hedged if the...
Need helpp with both! 3. Consider the N-step binomial asset pricing model with 0 < d<1...
Need helpp with both!
3. Consider the N-step binomial asset pricing model with 0 < d<1 A European bear-spread option has payoff where Ki< K2 (a) Assume N- 3, So100, K-85, K2-100, 0.05,10, and d-0.90 Calculate the price at time zero, V, of the bear-spread option. (b) Specify how you can replicate the payoff of the European bear-spread option by investing in the stock and the bank account and verify that a short position in the European bear- spread option...
A combination of Long 1 Put at K1, Short 2 Puts at K2, Short 100 shares...
A combination of Long 1 Put at K1, Short 2 Puts at K2, Short 100 shares of Stock at K2 and Long 1 Call at K(3) is an example of: O A Strangle O B Straddle C Bull Spread O D Butterfly Given: S(0) 50; r 0.05; T 6 months; K49. What is a lower bound for an American Call Option on non-dividend paying stock? O A C<or 50 O B Cor 2.21 c c>or=1
I. Consider the N-step binomial asset pricing model with 0 < d < 1 + r...
I. Consider the N-step binomial asset pricing model with 0 < d < 1 + r < u. Assume N = 3, So 100, r = 0.05, u = 1.10, and d 0.90. Calculate the price at time zero of each of the following options using backward induction (a) A European put option expiring at time N 2 with strike price K-100 (b) A European put option expiring at time N 3 with strike price K- 100 (c) A European...
You are attempting to formulate an investment strategy. In particular, you short a put option with strike price X1 equal...
You are attempting to formulate an investment strategy. In particular, you short a put option with strike price X1 equals to $95 and you long another put option with strike price X2 equals to $115. Both put options have the same underlying stock and will expire at time T. (a) Plot the payoff structure of this investment strategy as a function of ST, which stands for the price of the underlying stock at maturity. The X-axis for St and the...
1. (Put-call parity) A stock currently costs So per share. In each time period, the value...
1. (Put-call parity) A stock currently costs So per share. In each time period, the value of the stock will either increase or decrease by u and d respectively, and the risk-free interest rate is r. Let Sn be the price of the stock at t n, for O < n < V, and consider three derivatives which expire at t- N, a call option Vall-(SN-K)+, a put option Vpul-(K-Sy)+, ad a forward contract Fv -SN -K (a) The forward...
5:32 1 <Notes What is considered beautiful in one culture, can be considered deviant in another....
5:32 1 <Notes What is considered beautiful in one culture, can be considered deviant in another. Some things are deviant but not illegal. Do you believe marijuana should be illegal ? If so or if not explain why.
5:32 1 <Notes What is considered beautiful in one culture, can be considered deviant in another....
5:32 1 <Notes What is considered beautiful in one culture, can be considered deviant in another. Some things are deviant but not illegal. Do you believe marijuana should be illegal ? If so or if not explain why.
1. (Put-call parity) A stock currently costs So per share. In each time period, the value...
1. (Put-call parity) A stock currently costs So per share. In each time period, the value of the stock will either increase or decrease by u and d respectively, and the risk-free interest rate is r. Let Sn be the price of the stock at t-n, for O < n < N, and consider three derivatives which expire at t - V, a cal option Voll-(SN-K)+, a put option VNut-(X-Sy)+, and a forward option VN(SN contract FN SN N) ,...
Exercise 5. Let f(t) denote the 2-periodic function f(t) = 1+2 - <t< . a) Make...
Exercise 5. Let f(t) denote the 2-periodic function f(t) = 1+2 - <t< . a) Make a representative plot of f(t) showing at least 3 periods. b) Using the numerical integration routine you wrote in your Home work 1 (Exercise 3) compute approx- imately the values of the Fourier series coefficients all of f() for k in the range -20 to 20. c) Make a plot of laul
3. Consider the N-step binomial asset pricing model with 0 < d<1 A European bear-spread option has payoff where Ki< K2 (a) Assume N- 3, So100, K-85, K2-100, 0.05,10, and d-0.90 Calculate the price at time zero, V, of the bear-spread option. (b) Specify how you can replicate the payoff of the European bear-spread option by investing in the stock and the bank account and verify that a short position in the European bear- spread option is hedged if the...
Need helpp with both!
3. Consider the N-step binomial asset pricing model with 0 < d<1 A European bear-spread option has payoff where Ki< K2 (a) Assume N- 3, So100, K-85, K2-100, 0.05,10, and d-0.90 Calculate the price at time zero, V, of the bear-spread option. (b) Specify how you can replicate the payoff of the European bear-spread option by investing in the stock and the bank account and verify that a short position in the European bear- spread option...
A combination of Long 1 Put at K1, Short 2 Puts at K2, Short 100 shares of Stock at K2 and Long 1 Call at K(3) is an example of: O A Strangle O B Straddle C Bull Spread O D Butterfly Given: S(0) 50; r 0.05; T 6 months; K49. What is a lower bound for an American Call Option on non-dividend paying stock? O A C<or 50 O B Cor 2.21 c c>or=1
I. Consider the N-step binomial asset pricing model with 0 < d < 1 + r < u. Assume N = 3, So 100, r = 0.05, u = 1.10, and d 0.90. Calculate the price at time zero of each of the following options using backward induction (a) A European put option expiring at time N 2 with strike price K-100 (b) A European put option expiring at time N 3 with strike price K- 100 (c) A European...
1. (Put-call parity) A stock currently costs So per share. In each time period, the value of the stock will either increase or decrease by u and d respectively, and the risk-free interest rate is r. Let Sn be the price of the stock at t n, for O < n < V, and consider three derivatives which expire at t- N, a call option Vall-(SN-K)+, a put option Vpul-(K-Sy)+, ad a forward contract Fv -SN -K (a) The forward...
5:32 1 <Notes What is considered beautiful in one culture, can be considered deviant in another. Some things are deviant but not illegal. Do you believe marijuana should be illegal ? If so or if not explain why.
5:32 1 <Notes What is considered beautiful in one culture, can be considered deviant in another. Some things are deviant but not illegal. Do you believe marijuana should be illegal ? If so or if not explain why.
1. (Put-call parity) A stock currently costs So per share. In each time period, the value of the stock will either increase or decrease by u and d respectively, and the risk-free interest rate is r. Let Sn be the price of the stock at t-n, for O < n < N, and consider three derivatives which expire at t - V, a cal option Voll-(SN-K)+, a put option VNut-(X-Sy)+, and a forward option VN(SN contract FN SN N) ,...
Exercise 5. Let f(t) denote the 2-periodic function f(t) = 1+2 - <t< . a) Make a representative plot of f(t) showing at least 3 periods. b) Using the numerical integration routine you wrote in your Home work 1 (Exercise 3) compute approx- imately the values of the Fourier series coefficients all of f() for k in the range -20 to 20. c) Make a plot of laul
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