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problem 1:

a)  prepare down and describe the Black-Scholes European call option pricing formula. Describe how call prices it delivers change with each of the inputs to the computation.

b) What is the price of a European call option on a non-dividend paying stock when the stock price is $52, the strike price is $50 and the risk-free rate is 12% per annum, the volatility is 30% per annum and the time to maturity is three months?

c)  A call option with strike price of $50 costs $2. A put option with a strike price $45 costs $3. Describe, by using a suitable diagram, how a strangle can be made from such two options. What is the pattern of profits from the strangle?

d)  A one month European put option on a non-dividend paying stock is presently selling for $ 2.50. The stock price is $47, the strike price is $50 and the risk free interest rate is 6% per annum. What opportunities are there for an arbitrageur?

problem 2:

a) Distinguish between Transaction, Translation risk and economic risk in foreign exchange market. (Use an illustrative and numerical illustration in each case.

b) In case of transaction risks critically describe how one can use forward-spot swap deals and forward-forward deals to manage the risk.

c) Analyze how, as group treasurer, you can manage the translation risk of your multi-national enterprise?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M95896

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