What are break-even point maximum profit-loss of strategy

Assignment Help Financial Management

Reference no: EM13928270

Consider a 1-year (long) strangle on the Nasdaq-100 with strikes of 4,000 and 5,000. The index spot level is 4,655 and its volatility is 20%. The risk-free rate is 4% and the index pays a dividend yield of 2%.

(a) Use a 6-step binomial tree to price this strategy (note: Up and down movements need to match the volatility. Show all the tree parameters).

b) What are the break-even point(s), the maximum profit and maximum loss of this strategy?

Reference no: EM13928270

Questions Cloud

Financial management challenges and ethics : Financial Management Challenges and Ethics Find at least two articles from the ProQuest database that highlight and discuss two of the biggest challenges facing financial managers today.

Primary disadvantage of accrual accounting : The primary disadvantage of accrual accounting is that A. it does not match revenues and expenses in the period in which they are incurred B. it does not appropriately measure accounting profit

Describe the type of coverage provided : For each of the following coverages briefly describe the type of coverage provided and give an example of a loss that would be covered.

Compute the internal rate of return on both projects : Compute the internal rate of return on both projects. Compute the profitability index of both projects. Compute the payback period on both projects.

What are break-even point maximum profit-loss of strategy : Consider a 1-year (long) strangle on the Nasdaq-100 with strikes of 4,000 and 5,000. The index spot level is 4,655 and its volatility is 20%. The risk-free rate is 4% and the index pays a dividend yield of 2%. Use a 6-step binomial tree to price this..

What you know about correlations : Tell us a little about Dr. Hirsch's research. What did he do? What did he find? Why might Dr. Hirsch's research be important? Based on what you know about correlations, what problems do you see with Dr. Hirsch's research

Understanding of the reading-implications of new knowledge : The final case study should demonstrate understanding of the reading as well as the implications of new knowledge. The paper should integrate Readings and Resources and class discussions into work and life experiences. It may include explanation a..

All options are european-style-what is the theoretical price : AIG stock sells at $61.21 and the 6-month 60-strike put is selling at $3.20. The risk-free rate is 4% and the stock will pay a dividend of $0.30 in 3 months. We assume that all options are European-style. What is the theoretical price of the 6-month ..

How much work is required to pump all of the oil through : A hemispherical tank is lying on the ground with its flat side facing down. The tank is filled to a depth of 6 ft with oil of density of 50 lb/ft^3. How much work is required to pump all of the oil through a valve in the top of the tank to a point 5 ..

User Account

All Pages