a spot price of $63. $60 - $63 = ($3). $3 loss Question 2. The price of a stock is $36 and the price of a three-month call option on the stock with a strike price of $36 is $3.60. Suppose a trader has $3‚600 to invest and is trying to choose between buying 1‚000 options and 100 shares of stock. How high does the stock price have to rise for an investment in options to lead to the same profit as an investment in the stock? Answer: Let x = stock price. (x – 36)100 = (x – 3.6)1‚000 – 3‚600
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provide the relevant calculations. Assignment is individual. Assignments should be lodged at the next lecture (if you intend not to attend the lecture but would like to submit assignment‚ contact topic coordinator). Emailing assignment is not an option as one needs to get a permission in advance to do so. If you have been granted the permission then the assignment needs to be submitted before the start of the lecture‚ i.e. before 1pm. In case the assignment is submitted after 1pm‚ it will not be
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30 Assume that one‑year put options on Singapore dollars are available‚ with an exercise price of $.63 and a premium of $.04 per unit. One‑year call options on Singapore dollars are available with an exercise price of $.60 and a premium of $.03 per unit. Assume the following money market rates: U.S. Singapore Deposit rate 8% 5% Borrowing rate 9 6 Given this information‚ determine whether a forward hedge‚ money market hedge‚ or a currency options hedge would be most appropriate
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d. P + S0 – Xe-rt e. none of the above 2. What is the lowest possible value of a European put? a. Max(0‚ X – S0) b. Xe-rt c. Max[0‚ S0 – Xe-rt ) d. Max[0‚ Xe-rt – S0)] e. none of the above The following quotes were observed for options on a given stock on November 1 of a given year. These are American calls except where indicated. Use the information to answer questions 3 and 4. Calls Puts Strike Nov Dec Jan Nov Dec Jan 105 8.40 10 11.50 5.30 1.30 2.00 110 4.40 7.10
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compounded)‚ bought call option of price AUD705.2 for the capital protection under S&P 200 index of 4‚637.893 and written call option of price AUD40.9 for the return cap level over S&P 200 index of 7‚884.418. The return is based on 7 months’ arithmetic average index. In order to create the similar option payoff‚ instead of using American or European Options‚ a similar form of Asian options could be used to determine the maturity payoffs of the options. And this type of options can have benefits
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Grading Summary These are the automatically computed results of your exam. Grades for essay questions‚ and comments from your instructor‚ are in the "Details" section below. Date Taken: 11/22/2014 Time Spent: 1 h ‚ 36 min ‚ 44 secs Points Received: 100 / 100 (100%) Question Type: # Of Questions: # Correct: Short 6 N/A Grade Details - All Questions Question 1. Question : (TCO C) Blease Inc. has a capital budget of $625‚000‚ and it wants to maintain a target capital structure of 60% debt
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ADVANCED CORPORATE FINANCE BELZE Loïc Financial Options Lecture 7 – Chapter 20 ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education 7 - 20 - 1 www.em-lyon.com © EMLYON School EMLYON Business 2011 Chapter Outline • • • • • • 20.1 – Option Basics 20.2 – Option Payoffs at Expiration 20.3 – Put-Call Parity 20.4 – Factors Affecting Option Prices 20.5 – Exercising Options Early 20.6 – Options and Corporate Finance ADVANCED CORPORATE
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Mathematical Techniques in Finance‚ 2009) Q2. Hedging Problem Solution: a. Returns matrix of basis assets is The payoff the digital put option is Price of return S = 1‚ and Therefore‚ Since The hedge which minimizes the expected squared hedging error is By Matlab code: =[1.3*sqrt(0.3)‚1.05*sqrt(0.3);1.1*sqrt(0.5)‚1.05*sqrt(0.5);0.8*sqrt(0.2)‚1.05*sqrt(0.2)] =[0;0;sqrt(0
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following table: Price of Asset in 6 Agreed Forward Price months Payoff to Short Forward 40 10 45 50 5 50 50 0 55 50 -5 60 (b) The payoff 50 50 -10 to a purchased put option at expiration is: Payoff to long put option = max [0‚ Strike price - Spot price at expiration]
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Problem 20-6 on Call Options Based on Chapter 20 (Excel file included) You own a call option on Intuit stock with a strike price of $40. The option will expire in exactly 3 months’ time. a) If the stock is trading at $55 in 3 months‚ what will be the payoff of the call? b) If the stock is trading at $35 in 3 months‚ what will be the payoff of the call? c) Draw a payoff diagram showing the value of the call at expiration as a function of the stock price at expiration. Short call: value at expiration
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