Consider ABC stock is currently selling at $90. Assume that next period the stock price will...
Consider ABC stock is currently selling at $90. Assume that next period the stock price will be either $117 or $80. Assume also that there is a call option with exercise price of $92 and risk free interest rate is 4%. i. Show the evolution of both ABC stock price and call option written on it. ii. Find the no arbitrage value of the call option using BOP. iii. Suppose the call option currently is trading at $16 in the market. Is there arbitrage profit? If there is, find out how you get it and how much it is?
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Consider ABC stock is currently selling at $90. Assume that next
period the stock price will...
2. A stock has two possible ending prices six months from now: $120 or $90. A...
2. A stock has two possible ending prices six months from now: $120 or $90. A call option written on this stock has an exercise price of $110. The option expires in six months. The risk-free rate is 6% per year. The current price of the stock is $100. a. Show how you can create a hedge portfolio using a combination of the stock and call option on this stock. b. What is the equilibrium price of the call option...
A 10-month European call option on a stock is currently selling for $5. The stock price...
A 10-month European call option on a stock is currently selling for $5. The stock price is $64, the strike price is $60. The continuously-compounded risk-free interest rate is 5% per annum for all maturities. a) Suppose that the stock pays no dividend in the next ten months, and that the price of a 10-month European put with a strike price of $60 on the same stock is trading at $1. Is there an arbitrage opportunity? If yes, how can...
1. Draw payoff diagrams for the following option trading strategies. Assume all options have the same...
1. Draw payoff diagrams for the following option trading strategies. Assume all options have the same expiration date. a. Buy a share and write a call on the stock b. Buy a call with exercise price X1 and write a call with an exercise price X2 on the same stock, with X1 < X2. c. Buy a call with exercise price X1, sell two calls with exercise price X2 and buy a call with exercise price X3 with X1 X2...
A stock price is currently $20. It is known that at the end of one month that the stock price wil...
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...
Problem1 A stock is currently trading at S $40, during next 6 months stock price will increase to $44 or decrease to $32-6-month risk-free rate is rf-2%. a. [4pts) What positions in stock and T-...
Problem1 A stock is currently trading at S $40, during next 6 months stock price will increase to $44 or decrease to $32-6-month risk-free rate is rf-2%. a. [4pts) What positions in stock and T-bills will you put to replicate the pay off of a European call option with K = $38 and maturing in 6 months. b. 1pt What is the value of this European call option? Problem 2 Suppose that stock price will increase 5% and decrease 5%...
Long pul 2. Springtime Insurance Brokers Ltd. (SIBL stock is currently selling for $42. A put...
Long pul 2. Springtime Insurance Brokers Ltd. (SIBL stock is currently selling for $42. A put option on the stock with a value of $3 has an exercise price of $40 and 6 months until expiration. To prevent arbitrage opportunities, what should be the value of a call option with the same strike price and expiration date? Assume that the options are European and that the effective annual risk-free rate is 6%. the State Focus
Suppose Disney's stock price is currently $100. In the next six months it will either fall...
Suppose Disney's stock price is currently $100. In the next six months it will either fall to $80 or rise to $120. What is the option delta of a put option with an exercise price of $100? Need more information. It depends on the risk-free rate. 0.5 -0.5 0
1. A 10-month European call option on a stock is currently selling for $5. The stock...
1. A 10-month European call option on a stock is currently selling for $5. The stock price is $64, the strike price is $60. The continuously-compounded risk-free interest rate is 5% per annum for all maturities. 1) Suppose that the stock pays no dividend in the next ten months, and that the price of a 10-month European put with a strike price of $60 on the same stock is trading at $1. Is there an arbitrage opportunity? If yes, how...
Currently, a cal option on Bayou stock is available with an exercise price of $100 and...
Currently, a cal option on Bayou stock is available with an exercise price of $100 and an expiration date one year from now. Assume that the price of Bayou Corporation stock today is $100. Furthermore, it is estimated that Bayou stock will be selling for either $77 or $152 in one year. Also, assume that the annual risk-free interest rate on a one-year Treasury bill is 10 percent, continuously compounded. Therefore, the T-bil will pay $100 xe (0.1), or $110.25....
Suppose IBM's stock price is currently $100. In the next year it will either fall to...
Suppose IBM's stock price is currently $100. In the next year it will either fall to $70 or rise to $130. What is the price today of a one-year European call option on IBM with an exercise price of 100? The one-year risk-free interest rate is 2% per year. 6 10 0 15.69
2. A stock has two possible ending prices six months from now: $120 or $90. A call option written on this stock has an exercise price of $110. The option expires in six months. The risk-free rate is 6% per year. The current price of the stock is $100. a. Show how you can create a hedge portfolio using a combination of the stock and call option on this stock. b. What is the equilibrium price of the call option...
1. Draw payoff diagrams for the following option trading strategies. Assume all options have the same expiration date. a. Buy a share and write a call on the stock b. Buy a call with exercise price X1 and write a call with an exercise price X2 on the same stock, with X1 < X2. c. Buy a call with exercise price X1, sell two calls with exercise price X2 and buy a call with exercise price X3 with X1 X2...
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...
Problem1 A stock is currently trading at S $40, during next 6 months stock price will increase to $44 or decrease to $32-6-month risk-free rate is rf-2%. a. [4pts) What positions in stock and T-bills will you put to replicate the pay off of a European call option with K = $38 and maturing in 6 months. b. 1pt What is the value of this European call option? Problem 2 Suppose that stock price will increase 5% and decrease 5%...
Long pul 2. Springtime Insurance Brokers Ltd. (SIBL stock is currently selling for $42. A put option on the stock with a value of $3 has an exercise price of $40 and 6 months until expiration. To prevent arbitrage opportunities, what should be the value of a call option with the same strike price and expiration date? Assume that the options are European and that the effective annual risk-free rate is 6%. the State Focus
Suppose Disney's stock price is currently $100. In the next six months it will either fall to $80 or rise to $120. What is the option delta of a put option with an exercise price of $100? Need more information. It depends on the risk-free rate. 0.5 -0.5 0
Currently, a cal option on Bayou stock is available with an exercise price of $100 and an expiration date one year from now. Assume that the price of Bayou Corporation stock today is $100. Furthermore, it is estimated that Bayou stock will be selling for either $77 or $152 in one year. Also, assume that the annual risk-free interest rate on a one-year Treasury bill is 10 percent, continuously compounded. Therefore, the T-bil will pay $100 xe (0.1), or $110.25....
Suppose IBM's stock price is currently $100. In the next year it will either fall to $70 or rise to $130. What is the price today of a one-year European call option on IBM with an exercise price of 100? The one-year risk-free interest rate is 2% per year. 6 10 0 15.69
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