problem 1:
prepare down and illustrate out the Black-Scholes European call option pricing formula. Discuss and describe how call prices it delivers change with each of the inputs to the computations.
problem 2:
What is the price of 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 time to maturity is three months?
problem 3:
A call option with a strike price of $50 costs $2. A put option with strike price $45 costs $3. Illustrate out, using an appropriate diagram, how a strangle can be created from these two options. What is the pattern of profits from strangle?
problem 4:
A one month European put option on a non-dividend paying stock is now 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 arbitrageur?
problem 5:
Make a distinction between Transaction, Translation risk and economic risk in foreign exchange market. (Use an illustrative and numerical ex in each case.
problem 6:
In the case of transaction risks critically illustrate out how one can use forward-spot swap deals and forward-forward deals to manage the risk.
problem 7:
Examine how, as group treasurer, you can manage the translation risk of your multinational enterprise?