The spot price of SPY is currently (So= $200) the volatility of SPY is 60% (sigma= 0.060) We are onvested on valuing SPY option at the end of 6 months (T= 6/12= 0.5). The risk free rate with continuous compounding is 4% per amum (r= 0.04) Apply Arbitrage Portfolio approach with one step binomial tree and calculate de value of a six month European call option on SPY with an exercise/strike price of $220 (K=$220)
The spot price of SPY is currently (So= $200) the volatility of SPY is 60% (sigma=...
Value of a stock is currently at $40. Volatility of that stock is 30% per year and risk-free interest rate with continuous compounding is at 5% per year. Suppose you are planning to value a 3-month European call option with strike price at $41 using a two-step binomial model. Answer the following using this information. (Binomial Tree Approach to Option Valuation describe how to solve this problem) What are the values of u, d and q?
Consider a two-step binomial tree where the spot price of the underlying is currently $20. In each of the two time steps, the spot price may go up by 10% or down by 10%. Suppose that each time step is 3 months long and the risk-free rate is 12% per year. (a) Value a 6-month European call with a strike price of $21. (b) How would your analysis change if you were valuing an American call instead? 2
A stock currently sells for $50. In six months it will either rise to $60 or decline to $45. The continuous compounding risk-free interest rate is 5% per year. Using the binomial approach, find the value of a European call option with an exercise price of $50. Using the binomial approach, find the value of a European put option with an exercise price of $50. Verify the put-call parity using the results of Questions 1 and 2.
Question 1 a. A stock price is currently $30. It is known that at the end of two months it will be either $33 or $27. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a two-month European put option with a strike price of $31? b. What is meant by the delta of a stock option? A stock price is currently $100. Over each of the next two three-month periods it is...
1. A stock price is currently $50. It is known that at the end of 1 year it will be either $40 or $60. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a one-year European CALL option with a strike price of $50? Please use Non-arbitrage approach (8 points) Formula approach (8 points)
Question 3 - 20 Points Consider a European call option on a non-dividend-paying stock where the stock price is $33, the strike price is $36, the risk-free rate is 6% per annum, the volatility is 25% per annum and the time to maturity is 6 months. (a) Calculate u and d for a one-step binomial tree. (b) Value the option using a non arbitrage argument. (c) Assume that the option is a put instead of a call. Value the option...
The current price of a non-dividend-paying stock is 30. The volatility of the stock is 0.3 per annum. The risk free rate is 0.05 for all maturities. Using the Cox-Ross-Rubinstein binomial tree model with two time steps to do the valuation, what is the value of a European call option with a strike price of 32 that expires in 6 months?
. The spot price per share is $115 and the risk free rate is 5% per annum on a continuously compounded basis. The annual volatility is 20% and the stock does not pay any dividend. All options have a one-year maturity. In answering the questions below use a binomial tree with three steps. Each step should be one-third of a year. Show your work. 1.Using the binomial tree, compute the price at time 0 of a one-year European call option...
Question 17 ou a) A stock price is currently $60. Over each ofthe next two three-month periods it is expected to go up by 8% or down by 7%. The risk-free interest rate is 10% per annum with continuous compounding. What is the value of a six-month European call option with a strike price of $61? (3 marks) b) Based on the information in part (a), what is the value of a six-month European put option with a strike price...
A stock price is currently $20. It is known that at the end of one month that the stock price will either increase to 22 or decrease to 16. The risk-free interest rate is 12% per annum with continuous compounding. The hedge portfolio is a long position in Δ shares of stock plus one short Euorpean call option with strike price of $20 and expiration in 1 month. Using the no-arbitrage method, what is the present value of this hedge...