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

Luke is saving for a trip around the world for his family

Luke is saving for a trip around the world for his family and as of today has accumulated $2315 in a trip fund. His goal is to accumulate 4 times this amount to support the trip. Assuming that all of Luke's trip fund is ...

Prepare an outline for a report presentationreview an

Prepare an outline for a report presentation. Review an analytical or recommendation report you prepared in Chapter 10. Assume that you have been given 15 minutes to present the most important information from your writt ...

Show how to combine a currency swap paying swiss francs at

Show how to combine a currency swap paying Swiss francs at a floating rate and receiving Japanese yen at a floating rate with another currency swap to obtain a plain vanilla swap paying Swiss francs at a floating rate an ...

What ethical considerations might enter into decisions that

What ethical considerations might enter into decisions that result in cash flow and stock price effects that are valued lower than they might otherwise have been?

In a mass-transfer spray column a liquid is sprayed into a

In a mass-transfer spray column, a liquid is sprayed into a gas stream, and mass is transferred between the liquid and gas phases. The mass of the drops that are formed from a spray nozzle is considered a function of the ...

Information for next four questions the nullcom inc is

Information for next four questions: The Nullcom Inc. is considering to purchase a new machine. The cost of the machine is $200,000 and installation of $10,000. The machine will be depreciated straight-line to zero. The ...

Write 3-5 pages on the implementation of dodd-frank and the

Write 3-5 pages on the implementation of Dodd-Frank and the qualified mortgage rules in Dodd-Frank: specifically, concentrate on how small community banks have been treated relative to other institutions since the onset ...

Make an analytical model of a tornado using an irrotational

Make an analytical model of a tornado using an irrotational vortex (with velocity inversely proportional to distance from the center) outside a central core (with velocity directly proportional to distance). Assume that ...

You are prohibited from discussing this assignment with

You are prohibited from discussing this assignment with other students. Construct an Excel spreadsheet that determines the following values: 1. Black-Scholes-Merton model call option without dividends. 2. Binomial model ...

1 why do researchers care how much variability exists in a

1. Why do researchers care how much variability exists in a set of data? 2. Distinguish between descriptive and inferential statistics. 3. Conceptually, what does the variance tell us about a set of data?

  • 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

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

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