Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Assignment Instructions:

You are asked to create an American option multiplicative binomial model calculator in MatLab. Both put and call options should be valued. Given u, d, S0, K, r and T (the usual notation applies), you should create an m-file that computes an N-step solution.

You are then asked to also compute the standard hedge sensitivities and comment on their interpretation.

This is an individual assignment. You are asked to make the m-file. Your m-file should contain your name and student ID and your m-file should be populated with sufficient comments that will inform the reader of the code workings.

Terminology:

S: The underlying asset price.

ST: The underlying asset price at the maturity of the contract.

So: The underlying asset price at the start of the contract (at time t0).

K: The delivery price.

Fto or Fo: The forward price agreed at start of the contract (at time t0).

FV: The future value of the asset.

P: The present value of the asset.

R: The interest rate.

n: The number of years.

m: The number of compounding periods.

r: The risk-free interest rate.

T: The maturity date of the contract

I: The present value of the known income payment on the underlying asset.

q: The continuous yield on the underlying asset.

U: The present value of the storage costs.

u: The present value of the storage costs expressed as a continuous negative yield.

X: The exercise price on the option.

ITM: in-the-money. When the stock price is greater than the exercise price - i.e. S > X.

ATM: at-the-money. When the stock price is equal to the exercise price - i.e. S = X.

OTM: out-of-the-money. When the stock price is greater than the exercise price - i.e. S > X.

σ: The volatility of the stock price.

c: The call option price.

ct0: The call option price at the start of the contract (at time t0).

cT: The call option price at the maturity of the contract.

p: The put option price.

pt0: The put option price at the start of the contract (at time t0).

pT: The put option price at the maturity of the contract.

u: Proportion of an upward movement.

d: Proportion of an downward movement.

Δ: number of units of the stock.

CT,u: The call option price at maturity if there was an upward movement in the asset price.

CT,d: The call option price at maturity if there was an downward movement in the asset price.

p: : The probability of an upward movement.

E[A]: The expected value of A.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91853

Have any Question? 


Related Questions in Basic Finance

A company currently has no debt and its beta is 120 its tax

A company currently has no debt and its beta is 1.20. Its tax rate is 35%. The manager wants to change the capital structure. The expected debt is 40% and equity is 60%. If the market risk premium is 7.0%, and the risk-f ...

Lowell made a taxable gift of 2 million to his grandson and

Lowell made a taxable gift of $2 million to his grandson and allocated his remaining exemption of $500,000 to the gift. What is Lowell's GST tax liability in 2014?

1 although economists generally discredit mercantilism can

1. Although economists generally discredit mercantilism, can you find any examples in the popular press where politicians or business leaders use similar arguments to protect an industry? 2. Identify some products initia ...

1 describe the purpose of each of the five different

1. Describe the purpose of each of the five different research strategies. 2. Develop an example of a research study that contains a confounding variable. 3. Explain how using college students as participants in a study ...

Evaluate charts in a business publicationfind three or more

Evaluate charts in a business publication Find three or more charts in business articles from newspapers or magazines (e.g., Business Week or Fortune). Make a copy of each chart and the written information associated wit ...

1 give examples of disclosure in notes with personal

1. Give examples of disclosure in notes with personal financial statements. 2. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment. 3. List some objectives that could be ...

Explain the difference between a short hedge and a long

Explain the difference between a short hedge and a long hedge ? a. What is the basis? b. How is the basis expected to change over the life of a futures contract? c. Explain why a strengthening basis benefits a short hedg ...

You have a 1100 balance on your 15 credit card you have

You have a $1,100 balance on your 15% credit card. You have lost your job and been unemployed for 6 months. You have been unable to make any payments on your balance. However, you received a tax refund and want to pay of ...

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 ...

1 improving your credit score how can you improve your

1. Improving Your Credit Score. How can you improve your credit score and how long can it take to erase a poor credit history? 2. Reviewing Your Credit Score. How often should you review your credit report from each of t ...

  • 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