European Finance Assingment Help With Solution

Posted on March 23, 2017

European Finance Assingment Help With Solution

 
Please email me the topics or questions that you want to review. I’ll add those to this tab.
 
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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