Consider call on stock with strike

Assignment Help Financial Management

Reference no: EM131870087

Suppose you consider a call on a stock with strike K and time to expiration T. We consider the stock price at time T as a random variable ST. What is the fair value c of the call in terms of an expectation of a suitable random variable if we use the approach in (a) (and ignore interest rates and discounting)?

Note: This Method in (a) was "You play a game where you have to pay an upfront cost C to enter the game. You cannot lose any more money and your gain depends on the value of a real-valued random variable Y. Namely, if Y is negative, then you do not gain anything. If Y is positive, then you gain the amount Y. What is the fair value of C, i.e., the value C where on average (when you play the game repeatedly, one game does not influence the following games, and you do not care about the risk involved) you neither gain nor lose money in the long run?"

Reference no: EM131870087

Questions Cloud

Male students in the gymnastics class : How many of the 25 male students in the gymnastics class are taller than 5 feet 4 inches (64 inches)?

Write thoughts-experiences on the given statement : I agree that it is pretty common practice to monitor and escort terminated employees out. We do the same. But, I think it can be done in a way that allows.

What is the best estimate of the intrinsic stock price : The firm's weighted average cost of capital (WACC) is 12.0%. What is the best estimate of the intrinsic stock price?

Which height class has the highest frequency : 1. How many of the 25 male students in the gymnastics class fall in the 70- to 74-inch height class?

Consider call on stock with strike : Suppose you consider a call on a stock with strike K and time to expiration T. "You play a game where you have to pay an upfront cost C to enter the game.

Develop a one week day camp - day camp planning assignment : TRMP 150 - Recreation Planning - develop a one week day camp. The program must have a theme or common thread that ties all the activities to one another.

Explain the concept of the nine box matrix : Using the Nine Box Matrix (discussed in chapter 10), and employee doing a good job might actually be rated lower than a mediocre employee who has been working.

Male students in the gymnastics class : How many of the 25 male students in the gymnastics class are no more than 5 feet 4 inches (64 inches) tall?

Identify the five general principles of apa : 1. Identify the five general principles of APA regarding ethical conduct and what behaviors they pertain to.

User Account

All Pages