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1. A stock trades at $20. Its annual volatility is 18%. The risk-free rate is 3%. Calculate the price of a European call option and put option with strike K = 20 and T equal to 4 months. 206 CHAPTER 11. THE GREEKS
2. (Continued) Calculate the ? of a portfolio consisting of 2 long calls and 1 short put from the previous problem. How many shares of the stock would you short in order to build a new portfolio that is delta-neutral?
3. (Continued) If the stock moves down 15 cents, what is the exact change in price of the delta-neutral portfolio from the previous problem?
4. (Continued) What is the ν of one of these calls? of one of the puts?
Question:
(Continued) Calculate the ? and the ν of a straddle built from one of the calls and one of the puts. This example illustrates why a straddle built from at-the-money options is close to being delta-neutral and is a bet on volatility.
What are the arithmetic and geometric returns for the stock?
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You purchase a new house for $200,000 with a 5% down payment. You obtain a 30-year loan at 5% compounded monthly and will make monthly payments on the loan. Closing costs are $1,500. PMI is $150 per month for the first 5 years. Taxes are estimated to..
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Sustainability holds that:
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