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.
The hedge in the long position in the American put option can be achieved by use of Delta of the option.
the formula for the calculation as
Strike price = spot price = $ 115
r= 5%,
Vola = 20%,
Calculation based on the binomial model for 3 nodes as .
Greek for the option ,
Value : | 7.47449387 |
Delta (per $): | -0.4179557 |
explanation of Delta : The value of a put option with a delta of -0.42 is supposed to increase by 42 cents with fall of $1 in the price of underlying asset. The investor can create a delta neutral portfolio with use of position in spot market by by call option.
The spot price per share is $115 and the risk free rate is 5% per annum...
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. 1)Using the binomial tree, compute the price at time 0 of a one-year European put option on 100 shares of...
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. Compute u, d, as well as p for the standard binomial model.
. 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...
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