Use blacks model to determine the price

Assignment Help Macroeconomics
Reference no: EM131137651

Consider an eight-month European put option on a Treasury bond that currently has 14.25 years to maturity.

The current cash bond price is $910, the exercise price is $900, and the volatility for the bond price is 10% per annum. A coupon of $35 will be paid by the bond in three months. The risk-free interest rate is 8% for all maturities up to one year.

Use Black's model to determine the price of the option.

Consider both the case where the strike price corresponds to the cash price of the bond and the case where it corresponds to the quoted price.

Reference no: EM131137651

Questions Cloud

What are the benefits and costs of us antidumping laws : The late Milton Friedman often wrote that instead of imposing countervailing duties on subsidized foreign goods, the United States should write a note of thanks to foreign taxpayers. Do you agree?
The same hypothesis is tested often enough : If the same hypothesis is tested often enough, it is likely to be rejected at least once, even if it is true. A professor of biology, attempting to demonstrate this fact, ran white mice through a maze to determine if white mice ran the maze faster..
Discover the cause of a certain kind of cancer : An epidemiologist is trying to discover the cause of a certain kind of cancer. He studies a group of 10,000 people for five years, measuring 48 different "factors" involving eating habits, drinking habits, smoking, exercise, and so on.
Is the reported peak deviatoric stress reasonable : A one-dimensional consolidation test gave the following results: Cc = 0.32, Cr = 0.06, and OCR = 6. In the field, the groundwater level is at the ground surface.
Use blacks model to determine the price : Consider an eight-month European put option on a Treasury bond that currently has 14.25 years to maturity.- Use Black's model to determine the price of the option.
Determine whether the average nicotine content : With reference to Example 4, for what values of 1 - 2 would the null hypothesis have been rejected ? Also find the probabilities of type II errors with the given criterion if
Estimate the undrained shear strength under plane strain : Show calculations to support your answer. Estimate the undrained shear strength under plane strain.
Is aggregate demand a specific dollar amount : Is aggregate demand a specific dollar amount? - Explain each of the following:- real balance effect- interest rate effect- international trade effect.
Computer study-influence of supports on itframe behavior : Computer study-Influence of supports on Itframe behavior. (a) Using the RISA-2D computer program, compute the initial elastic deflection at midspan of the girder in Figure, given that the support at D is aroHer.

Reviews

Write a Review

Macroeconomics Questions & Answers

  Would you support the associations proposal or oppose it

The North Carolina Association of Professional Cat Groomers has asked the state legislature to require that anyone who offers cat grooming services in the state must have a license. Under the Association's proposal, any of the existing members of ..

  Who is responsible for making a forecast for bookings

Rail Tours sells packaged tours on rail lines, including gourmet meals and a reserved bed. The most popular tours are in the autumn when colors are at their peak. The overnight package for Saturday and Sunday morning are especially heavily booked.

  Is the country foreign exchange overvalued or undervalued

Is the country's foreign exchange overvalued or undervalued? Has the central bank intervened in the foreign exchange market on behalf of the country's currency valuation?

  Discuss the five major kinds of drivers of globalization

Discuss the five major kinds of drivers of globalization as it applies for your chosen company - Analyze the basic needs potential for the markets of your chosen company.

  Real interest rates

"Real Interest Rates" Please respond to the following: Determine the best possible way to account for inflation when considering where to invest your money. Provide specific examples to support your response.

  Elucidate whether you would draw an aggregate demand

Elucidate whether you would draw an aggregate demand or aggregate supply diagram and predict what shift each situation would cause.

  Real contribution to the local economy

Assume the construction of the $360M stadium is to be financed entirely with debt to be repaid over twenty years. The repayment burden is negilible in short run.

  What are moorea and ettas profit-maximizing sales quantity

Etta and Moorea run a stand where they sell lemonade and brownies. Their cost function is\(C(Q_{L}Q_{B})= .5Q_{L}+.25Q_{L}^{2}+Q_{B}^{2}-Q_{L}Q_{B}\)they can sell a cup of lemonade for $1.20 and a brownie for $0.95. What are Moorea and Etta's prof..

  Compute the implied arc income elasticity of demand

Compute the implied arc income elasticity of demand. Holding all else equal, would a further increase in price result in higher or lower total revenue.

  Reasons and causes behind higher wage in germany

Give three reasons why firms produce in Germany rather than in a lower-wage country.

  What is the net present worth of the project

A special-purpose machine tool set would cost $30,000. The entire capital expenditure ($30,000) is to be borrowed with the stipulation that it be repaid by two equal end of year payments at 15% compounded annually. The tool is expected to provide ..

  1 a worker in equador can earn 3 per day making cotton

1. a worker in equador can earn 3 per day making cotton cloth on a hand loom. a worker in the united states can earn 70

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