User Account

All Pages

Derive an expression for the riskless portfolio

Assignment Help Finance Basics
Reference no: EM133060288

A short forward contract on a non-dividend paying stock is equivalent to short selling theoor stock at time 0, for S0 and buying a zero coupon bond that pays face amountF = S e T at time T. Then at time T' the short position is closed out.

a) If the price of the stock at time t is S1, where 0 < 1 < T, what is the value of theshort forward contract at this time?

b) Show that the value of the short forward contract satisfies the Black-Scholes-MertonPDE.

c) The riskless portfolio consists longing delta units of the underlying stock and shorting1 unit of the derivative. In this example the derivative is a short forward contract. Derive an expression for the riskless portfolio.

Reference no: EM133060288

Questions Cloud

What is the long-run average volatility : Suppose that the parameters in a GARCH (1,1) model are a = 0.01, ß = 0.96 and ? = 0.000002.
What is the maximum amount : You are considering purchasing a perpetuity investment that will entitle you to receive $10 every month forever. The first perpetuity payment starts one month a
Immediate development of a two-storey building : What is the static NPV of immediate development of a two-storey building? Assume that the building will be built immediately and the condos sold immediately.
United states should employ more protectionism : Do you think the United States should employ more protectionism or less? what do you think the end results of your recommendation would be and why ?
Derive an expression for the riskless portfolio : A short forward contract on a non-dividend paying stock is equivalent to short selling theoor stock at time 0, for S0 and buying a zero coupon bond that pays fa
Compute the net revenue from oil for bp : Assume that you will have 1 Barrel of oil (you are a finance manager at BP which sells oil), one month from today. The current price of oil is $86.0 / barrel. Y
Find potential maximum loss : The current price of a certain stock is £32, and a 3-month European call option with a strike of £33 costs £3.20. You believe that this stock will rise sharply
What was the export price for the corolla : Toyota's Pass-Through. Assume that the export price of a Toyota Corolla from Osaka, Japan, is Y2,150,000. The exchange rate is Y87.60/$. The fore­cast rate of i
Court systems and administrations : What if you were the chairperson of a presidential commission to reform the federal court system; what would your recommendations be?

Reviews

Write a Review

Finance Basics Questions & Answers

  Difference between a static budget and a continuous budget

Why is the difference between a static budget and a continuous budget important in understanding budgets? How are understandability and comparability enhanced when knowing who is responsible for the budgeting process?

  Can wolfgang career at spumonti be saved

Spumonti, Inc., is a small manufacturer of furniture. The company was founded in 1987 by Joe Spumonti, who had been employed as a cabinetmaker in a large firm.

  Calculate the 2015 value of common stockholders

Calculate the 2015 value of common stockholders' equity for Jake's Jamming Music, Inc. (Round your answer to the nearest dollar amount.)

  Goode incs stock has a required rate of return of 1150 and

goode inc.s stock has a required rate of return of 11.50 and it sells for 25.00 per share. goodes dividend is expected

  Prepare statement of cash flows using the indirect method

The balance sheet for Plasma Screens Corporation along with additional information is provided below.

  Determining the confidence interval

A recent study of Taxi Drivers Association found out the mean fine charged from Kennedy Airport to Madison Square Garden was $21 and a standard deviation of $3.50. That data is a normal distribution sample size of 16. 99% confidence interval i..

  Define how do the tax-exempt securities used to pay

Traverse County needs a new county government building that would cost $10 million. The politicians feel that voters will not approve a municipal bond issue.

  Calculate each project''s payback period

Calculate each project's payback period. Calculate the net present value (NPV) for each project. Calculate the internal rate of return (IRR) for each project.

  Generate a cash flow forecast

Write a one or two-sentence comment on the meaning of your "plug" figures. Print this pro forma to fit one page for page 2 of your package. Your second job is to use the same assumptions to generate a cash flow forecast [EBITDA method], using the ..

  Ricardian equivalence theorem

In your answer, please make sure to clearly define what Ricardian equivalence theorem is.

  The capital budgeting decision

The Capital Budgeting Decision

  What is the value of firm

The debt is selling at par value. What is the value of this firm?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd