Reference no: EM131326146
Put-call parity is a powerful formula that can be used to create equivalent combinations of options, risk-free bonds, and stock. Suppose that there are options available on the number of points LeBron James will score in his next game. For example, a call option with an exercise price of 32 would pay off Max(0, S0 - 32), where S0 is the number of points LeBron has recorded by the end of the game.
Thus, if he scores 35, call holders receive $3 for each call. If he scores less than 32, call holders receive nothing. A put with an exercise price of 32 would pay off Max(0, 32-S0). If LeBron scores more than 32, put holders receive nothing.
If he scores 28, put holders receive $4 for each put. Obviously there is no way to actually buy a position in the underlying asset, a point.
However, put-call parity shows that the underlying asset can be recreated from a combination of puts, calls, and risk-free bonds. Show how this would be done, and give the formula for the price of a point.
|
What is the annually compounded risk free interest rate
: A non-dividend-paying common stock is trading at $100.- What is the annually compounded risk-free interest rate where the boundary condition begins to be non-zero?
|
|
Create an income statement for the given company
: Create an Income Statement for the above company. List the changes of all Balance Sheet items as a result of the transactions a-f in question 1. Create a cash flow statement for the company in question1.
|
|
Calculate the entropy change of the universe
: A copper block of 0.4 kg mass and with heat capacity at constant pressure of 150J/K at 100°C is placed in a lake at 100°C.
|
|
What advantages do you have over your competition
: Mktg 305: Teaching cases are typified by the presentation of a problem, or sometimes multiple problems, for the reader to systematically solve through the case analysis process. After initially reading or skimming the case, you should read through..
|
|
Give the formula for the price of a point
: Put-call parity shows that the underlying asset can be recreated from a combination of puts, calls, and risk-free bonds. Show how this would be done, and give the formula for the price of a point.
|
|
What is the hospitals breakeven point
: What is the hospital's breakeven point? What volume is required to provide a profit of $ 1,000,000? A profit of $500,000? What # of visits is required to provide you with an after-tax profit of $ 100,000?
|
|
Can one tool be used for managing more than one area
: What is the best tool for each area? Can one tool be used for managing more than one area? Why or why not? Support your information and make sure all information sources are appropriately cited
|
|
What is the optimal level of capital for the firm
: A corporation produces output with a constant market price of $70 per unit. The marginal product of capital is 1/(2K), where K is units of capital, with each unit assumed to be worth $1. The life span of the capital is 10 years, implying the strai..
|
|
How to accomplish equivalent of a short sale by using option
: Congress has not figured out options, however, so there are no restrictions on option trading. Explain how to accomplish the equivalent of a short sale by using options.
|