SOLUTIONS MANUAL CHAPTER 15 PUT AND CALL OPTIONS PROBLEMS Exercise (strike) price 1. A stock has an exercise (strike) price of $40. a. If the stock price goes to $41.50‚ is the exchange likely to add a new strike price? b. If the stock price goes to $42.75 is the exchange likely to add a new strike price? 15-1. a) No. For stocks over $25‚ the normal interval is $5‚ with a new strike price added at the halfway point or $42.50 (between $40 and $45). b) Yes‚ the stock price has equaled or exceeded
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Project Report on Derivatives | Introduction to Futures & Options | Faculty: Dr. Sharif N. Ahkam 1.0INTRODUCTION In recent times the Derivative markets have gained importance in terms of their vital role in the economy. The purpose of this report to get an orientation to the derivatives and develop a basic understanding of what it is and how does it work. Derivatives are financial instruments‚ which derive their value from an underlying asset. The underlying
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variate estimate of the American Put option instead of the value as implied by the tree? It is because that control variate estimate is more accurate than the implied value by the tree. The error of the binominal tree can be reduced by using it only to calculate the difference between the price of the American and the equivalent European options with the same strike and the same time to maturity. 2. Use Solver to find the implied volatilities for all put options with strike prices between $70
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3. How do your estimates compare with the actual quoted prices? Can you explain the differences? Assuming your prices are correct‚ which options would you buy or sell? Our estimates are a little different with the actual quoted prices. Why? Because some assumptions are underlying the B/S formula. 1). The stock will pay no dividends until after the option expiration date. 2). Both the interest rate‚ r‚ and variance rate‚ δ2‚ of the stock are constant (or in slightly more general versions of the
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questions in the assignment on your own. The purpose of the assignment is to help you become more familiar with pricing options‚ using a specifically designed piece of software. The pricing of options is a very technical area‚ and most of us do not have the technical expertise to price options from first principals. Therefore in your working lives‚ if you do need to price options‚ then it will most likely be done for you via software. The software we will be using is called ‘DerivaGem’‚ which
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Solutions to Exam 1 1. (Chapter 1‚ slides‚ Q3) Suppose there are two investments.The expected returns from the investments are 10% and 15%‚ the standard deviation of the returns are 16% and 24%‚ and the correlation between returns is 0.2.Let w1 be the proportion of wealth put into the first investment. (a). Calculate the expected return and the standard deviation for portfolio w1=0‚0.2‚0.4‚0.6. (b). Draw a picture of these risk and returns for w1. (c). What is it called? (d). Draw the picture of
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statements is CORRECT? ‚e. An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend. 2. Which of the following statements is CORRECT? b. Call options generally sell at a price less than their exercise value. c. If a stock becomes riskier (more volatile)‚ call options on the stock are likely to decline in value. 3. Which of the following statements is CORRECT? d. The market value of an option depends in part on the option’s
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I: Do the following Questions 1. Define American Call/Put option 10 pts Answer Options allow investors to hedge against risk. If one expects stock prices to rise‚ then he/she may like to invest in stocks. However‚ buying stocks also entails risk because of price fluctuation. The risk will be potentially large in case price falls to zero. In order to avoid risk one may like to buy a call option. An American call option gives one the right‚ but not an obligation‚ to buy a specified
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Insurance Options in America Insurance Options in America Outline 1. What is the definition of health insurance 2. What is public health insurance 3. What is private health insurance 4. 2010 Healthcare Reform Bill 5. Conclusion [ ]Abstract Health insurance is not the first thing on the minds of seemingly
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Exam‚ F65 April 2009 Exam F65: Financial Models in Excel Copenhagen Business School 1. April 2009 Open book exam‚ 4 hours Own computers allowed General information You must hand in your solution in Excel spreadsheet format. You must hand in 2 copies at floppy disks or CD-ROMs. Each of the exercises has been given an individual weight. These indicate to the student how much time should be used on each exercise. However‚ the final grade will not rely on these weights only‚ but might be
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