Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem 1: Describe how you would hedge a short position in a European (plain vanilla) call with six weeks to maturity if the spot price is 60, the strike is 65 and σ = 0.3, r = 0.1. You rehedge every week. Suppose that the stock will follow the given path for the end-of-week prices: 63, 59, 64, 68, 64, 67. Describe how your hedging position modifies every week and what trades you must put in to do so. Suppose there are no transaction costs. Find out the hedging cost?

problem 2: The given prices are observed in the market for an option: (all options are on the same underlying with similar maturity time).

A) Stock trades at S0 = 100. 
B) A straddle with K = 100 trades at 7.9. 
C) A strip with K = 100 trades at 12.1. 
D) A strap with K = 100 trades at 11.6. 
E) A strangle with K1 = 95 and K2 = 105 trades at 5.0. 
F) A butterfly spread with K1 = 95, K = 100 and K2 = 105 trades at 2.1.

Describe a risk-free strategy to make money in this market (just trading the above instruments)

problem 3: The European asset-or-nothing option that expired at time T pays its holder the asset value S(T) at time T is S(T) > K and pays 0 or else. Find out the no-arbitrage cost of such an option as a function of parameters s, T, K, r, σ. Find out its Delta.

problem 4: You buy 1000 six months ATM call options on the non-dividend paying asset with spot price 100, following a lognormal proves with volatility 30%. Suppose that the interest rates are constant at 5%.

A) How much do you pay for the options?
B) What Delta-hedging position do you have to take?
C) One the next trading day, the asset opens at 98. Determine the value of your position (the option and shares position)?
D) Had you not Delta-hedged, how much would you have lost due to the reduction in the price of asset?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M9443

Have any Question? 


Related Questions in Basic Finance

Based on the corporate valuation model abc corps value of

Based on the corporate valuation model, ABC Corp's value of operations is $1,600 million. Its balance sheet shows $625 million of current assets which includes $125 million of short-term investments that are unrelated to ...

Assignment casethis case has two separate partspart i

Assignment Case This case has two separate parts. Part I: Capital Budgeting Practice Problems a. Consider the project with the following expected cash flows: Year  Cash flow 0 -$400,000 1 $100,000 2 $120,000 3 $850,000 • ...

A 1000 bond is paying a coupon interest rate of 7 the

A $1,000 Bond is paying a coupon interest rate of 7%. The current Required Rate of Return in the market is 5%. If you were buying this Bond on the market today, would you expect to pay more than $1,000 for it (Premium) o ...

1 discuss the pros and cons of using naturalistic versus

1. Discuss the pros and cons of using naturalistic versus contrived observation. 2. What special opportunities and problems does participant observation create for researchers? 3. What does it mean if a behavior is react ...

Diversification- videosgo to wwwcnbccom and explore the

DIVERSIFICATION- VIDEOS Go to www.cnbc.com and explore the video tab using the key term diversification. As you learned in this unit, there are various sources of information. 1) Watch at least three videos you find, 2) ...

1 explore the websites of companies producing beverages and

1. Explore the websites of companies producing beverages, and represent the logistics system of one of them. 2. Discuss the main differences in managing a logistics system of a service company (in particular, a bank) and ...

Discussionmiddot managed care contracting and ratio

Discussion · Managed Care Contracting and Ratio Analysis" · From the scenario, interpret the operating indicators used to analyze the financial performance of the organization. Indicate specific ways in which this inform ...

You have been asked to evaluate the effects of a new

You have been asked to evaluate the effects of a new educational video that was developed to reduce racial prejudice among adolescents. You plan to administer a pretest measure of racial attitudes to 60 adolescent partic ...

1 why was the fujita-pearson tornado scale updated in 2006

1. Why was the Fujita-Pearson Tornado Scale updated in 2006, and what changes were made? 2. What are the three categories of wildland fires? 3. How are severe weather storms measured? 4. What single disaster type caused ...

On august 20 a stock index futures which expires on

On August 20 a stock index futures, which expires on September 20, was priced at 429.70. The index was at 428.51. The dividend yield was 2.7 percent. Discuss the concept of the implied repo rate on an index arbitrage tra ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen