Consider a 1-year long strangle on the nasdaq-100 with, Ask an Expert

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Consider a 1-year (long) strangle on the Nasdaq-100 with strikes of 4,000 and 5,000. The index spot level is 4,655 and its volatility is 20%. The risk-free rate is 4% and the index pays a dividend yield of 2%.

(a) Use a 6-step binomial tree to price this strategy (note: Up and down movements need to match the volatility. Show all the tree parameters).

b) What are the break-even point(s), the maximum profit and maximum loss of this strategy?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91601150

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