European Finance Assingment Help With Solution

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Q10.11. A 4-m European call on a dividend-paying stock is selling for $5. S0 = $64. K = $60. Dividend of $0.80 will be paid in 1 month. Rf = 12%.
What’s the arbitrage opportunity?

Q15.16. Portfolio = $60mil. S&P 500 = 1200. Portfolio mirrors S&P500. Protect against portfolio falling below $54mil in 1 year.
Which option to purchase?

Q12.1. S0 = $40. In 1 month, it will be either $42 or $38. Rf = 8%. Price 1-m $39 call.

u = 1.05 42 3
d = 0.95 40 1.689368072
p = 0.566889384 38 0

Q1. Consider a 6-month European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40,
the risk-free rate is 4% per annum, the volatility is 30% per annum. Value the option using a 3-step tree.

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Q2. A call with a strike price of $70 costs $5.63. A put with the same strike price and expiration date costs $3.92.
If you create a straddle, what is the initial cash flow? If cash outflow, answer a negative number.

-$9.55

Q3. Currently the index is standing at 1,007. The risk-free rate is 5% per annum and the dividend yield is 3% per annum.
A 6-month European call option on the index with a strike price of 998 is worth $28.30.
What is the value of a 6-month European put option on the index with the same strike price?

put-call parity c + K exp(-rT) = p + S0 exp(-qT)
p = c + K exp(-rT) – S0 exp(-qT)
9.651569024

Q4. Consider a 6-month European call option on a non-dividend-paying stock where the stock price is $40, the strike price is $40,
the risk-free rate is 4% per annum. Stock price will either move up by 10% or down by 5%, every 2 months. Price the call with binomial trees.

2.26

Q5. Consider a stock index currently standing at 2,100. The dividend yield on the index is 3% per annum and the risk-free rate is 1%.
A 3-month European call option on the index with a strike price of 2,000 is trading at $115.77.
Calculate the implied volatility

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