Value of european vanilla put option on asset

Assignment Help Financial Management

Reference no: EM131880320

Part A:

i. When valuing European Vanilla Options in the Black-Scholes-Merton Model, there is one source of uncertainty. What is this uncertainty? Max 50 words.

ii. Why does a short call position in a European vanilla option typically have negative delta (Δ)? Max 75 words

Part B :

The current price of a non-dividend paying asset is $65, the riskless interest rate is 5% p.a. continuously compounded, and the option maturity is five years. What is the lower boundary for the value of a European vanilla put option on this asset with strike price of $80?

Part C

Two companies have investments which pay the following rates of interest:

Fixed Float

Firm A 6% Libor

Firm B 8% Libor + 0.5%

Assume A prefers a fixed rate and B prefers a floating rate. If an intermediary charges both parties equally a 0.1% fee and any benefits are spread equally between Firm A and Firm B, what rates could A and B receive on their preferred interest rate? Show all working.

Reference no: EM131880320

Questions Cloud

What is net present value of project and total cash flow : What is final year’s total cash flow? What is the net present value of this project?

Elaborate on the importance : Please elaborate on the importance of each of these skills in at least 50 words:

Discuss the existentialism and psychoanalysis : How does his work relate to mainstream figures in these fields, such as Sartre, Freud, and Marx? Be sure to give some specific examples from Frankl's.

Assignment-personnel evaluation : Compare and contrast three (3) state agencies' personnel evaluation systems.

Value of european vanilla put option on asset : What is the lower boundary for the value of a European vanilla put option on this asset with strike price of $80? Part C

Discuss the concept of batna : Discuss the concept of BATNA and explain how a negotiator can effectively use it to plan a negotiation.

Examine the major theoretical approaches : Discussion: Examine the major theoretical approaches, research methods, and assessment instruments used in the five perspectives of personality.

Conduct ongoing performance reviews for all employees : Guided by our Employee Promise to retain and develop our best talent, we've enhanced our behavioral expectations to show the connection.

Directions of communications : Explain one problem that can occur in each of the following directions of communications:

User Account

All Pages