Question

I need help with letter d please

9.2. Assume the Black-Scholes framework. Let S be a stock such that S(0) = 21, the dividend rate is 8 = 0.02, the risk free rate is r = 0.05, and the volatility is o = 0.2. (a) Calculate the expected risk free payoff of a 6 month call with strike price 17. (b) Calculate the cost of such a call. (c) Calculate the cost of a 6 month put with strike price 17. (d) Calculate the price of a derivative that pays (S(0.5) – 17in six months. Hint: Draw a payoff diagram before you do anything else!

Answer 1

34 26 Sezakee) - 17 Over 2. = 57 = 50+ Irish fee payoff of a Generall call see 54.527 cost of such soll wsing BSM stock prer de mest should be discounted with Dividerd 318062405 - 20791 di = lnrso ) + ( a + Costo XT = ln (go. 797) + Coast (05x 082) xos 17 Jos 0.0254 0.go y < 0°2013 + f o 1414 di = 1.6032 dz a di - Coxro - 1.6038 - Cogorvos) - 1.4617 Nd, - o 9452 Ndz = 0.9979

CEIC cost of a call - (Sox Nay) - Cx xe hot x NC dz) 20.79 1x 6.9452) - (17e x 0.9279) 005xo 5 - 4.36 cost of call = (4.2667 Answer (3) cost of put - Co-so + CXXfXT = 4.26 - 20.7917 Ciaxe 10.0493 Answer.84) Price of derivative i Rp = 005 at 0°5 years = 17 - 17 & 2 oso) - 0.0 12x0.5 - 17 e cord) = 17- 00:05-002)T 16.73
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