Find the arbitrage-free price of option

Assignment Help Financial Management
Reference no: EM131929167

Consider a 6-month option to exchange a stock share with current price $100 with volatility σ1=15% with another different stock share with current price $120 with volatility σ2=25%. Assume that the covariance between the prices for these two shares is -0.005. Find the arbitrage-free price of this option.

Reference no: EM131929167

Questions Cloud

Taking risks that may hasten death : What is meant by different people relate differently towards taking risks that may hasten death? Give an example of such risks. Make it 4-5 lines in response.
Discuss issues in the mental health care arena : Post an explanation of those emerging issues in the mental health care arena that the policymakers address and those that are in need of policy advocacy.
What is the net income for the firm : What is the net income for the firm? If the firm pays a 20% dividend, how much is added to retained earnings?
Research an area of disability that you may encounter : Research an area of disability that you may encounter in the classroom, and present information based on research conducted online.
Find the arbitrage-free price of option : Assume that the covariance between the prices for these two shares is -0.005. Find the arbitrage-free price of this option.
How do guests use their senses to experience our guest rooms : How do guests use their senses to experience our guest rooms? How do our sense impact our experience?
What experience have people got from joining the club : What experience have people got from joining the club, I will also be asking him what's the requirement to join the club?
Define and describe horizontal and vertical trend analysis : Define and describe horizontal and vertical trend analysis. Explain how horizontal and vertical trend analysis are used to analyze financial statements
Turn of the screw and the movie the innocents : What are the major differences between the book The turn of the screw and the movie the innocents?

Reviews

Write a Review

Financial Management Questions & Answers

  Disadvantages of issuing stock or long-term debt

A company needing additional capital can either borrow it, or convince stockholders to invest more.  List the various advantages and disadvantages of issuing stock or long-term debt, such as bonds. If you were helping manage a company that was in the..

  What will be the percentage change in the price of the bond

A Bond pays a 8 percent coupon rate with 10 years to maturity, makes semiannual payments, and has a yield-to-maturity of 6 percent. If market interest rates suddenly rise 1 percent, what will be the percentage change in the price of the bond? Did it ..

  Your account right after you make your last deposit

How much money will you have in your account right after you make your last deposit?

  Which one of these terms is used to refer to short-term debt

Which one of these terms is used to refer to short-term debt?

  What is the project operating cash flow for the first year

Operating Cash Flow The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: Projected sales $25 million Operating costs (not including depreciation) 7 millio..

  Controlling interest in the consolidated income statement

Compute the amount of income assigned to the controlling interest in the consolidated income statement for 20X4.

  While examining the current economic outlook

While examining the current economic outlook, we observe that the risk-free rate is 2% and the market risk premium is 4%. Given this information, which of the following statements is CORRECT?

  Significant new television advertising campaign

Assume Home Depot had a significant new television advertising campaign that was to be rolled out during the Super Bowl.

  What is value of bond that matures

What is the value of a bond that matures in 17 years makes an annual coupon payment of $50 and has a par value of $1,000. Assume a required rate of return of 6%

  Now assume you are in a perfect market with only corporate

now assume you are in a perfect market with only corporate taxes added. cde corp. is all equity financed with 5000

  What is the annual yield to maturity on the bond

Frazier Fudge has a $1,000 par value bond that is currently selling for $1,300. It has an annual coupon rate of 7%, paid semiannually, and has nine years until maturity. What is the annual yield to maturity on the bond (rounded to the nearest whole p..

  Bond valuation and quarterly interest

Calculate the value of a $5000-par-value bond paying quarterly interest at an annual coupon interest rate of 10% and having 10 years until maturity if the required return on similar-risk bonds is currently a 12% annual rate paid quarterly.

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!

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