Determine the prices of the straddle and the chooser

Assignment Help Finance Basics

Reference no: EM131290640

An investment manager expects a stock to be quite volatile and is considering the purchase of either a straddle or a chooser option. The stock is priced at 44, the exercise price is 40, the continuously compounded risk-free rate is 5.2 percent, and the volatility is 51 percent. The options expire in 194 days. The chooser option must be declared a call or a put exactly 90 days before expiration.

a. Determine the prices of the straddle and the chooser.

b. Suppose at 90 days before expiration, the stock is at 28. Find the value of the chooser option at expiration if the stock price ends up at 50 and at 30.

c. Suppose at 90 days before expiration, the stock is at 60. Find the value of the chooser option at expiration if the stock price ends up at 50 and at 30.

d. Compare your answers in c and d to the performance of the straddle.

Reference no: EM131290640

Questions Cloud

Explain the risk characteristics of io and po strips : Using your answer in a, determine the value of both IO and PO strips with a discount rate of 10 percent under the assumption that the mortgage will not be prepaid.

Write an description paragragh about disneyland : You need to write an description paragragh which is about "disneyland" only one or two pages - As soon as posible

Provide a clear understanding of the papers direction : Introduction and/or Background-The introduction and/or background have excellent detail providing a clear understanding of the paper's direction with excellent integration of course material and the assignment's requirements.

Whether there are any particular law enforcement duties : Explain whether there are any particular law enforcement duties that should exclusively belong to federal law enforcement or the police. What is the reason for your choice?

Determine the prices of the straddle and the chooser : Suppose at 90 days before expiration, the stock is at 28. Find the value of the chooser option at expiration if the stock price ends up at 50 and at 30.

Would you change the corporate strategy : Suppose you are the CEO of Nike and the world is coping with an economic recession. Would you change the corporate strategy? If so, what changes would you make and why? If not, why not?

Estimate the mean cholesterol level : 1. Dr. Moore wanted to estimate the mean cholesterol level for all adult men living in Hartford. He took a sample of 25 adult men from Hartford and found that the mean cholesterol level for this sample is 186 with a standard deviation of 12.

Essay on gandhis political theory : Write an essay comparing Gandhi's political theory to MLK's "Writing from Birmingham Jail" and those views expressed in Thoreau's Civil Disobedience.

Brand extension assignment : Choose a product write a 5 (not including title page, table of contents and reference page) page paper discussing how you would create a brand extension of that product. Include your rationale for the brand extension and cite 3 credible sources.

User Account

All Pages