What is the price of a call option on stock

Reference no: EM131960726

Question: Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following three stocks are traded: x1=(10,0,30) x2=(0,20,40) x3=(20,20,0). The t=0 prices of these stocks are given as follows (p1, p2, p3)=(12, 14, 8).

(a) Is there an arbitrage?

Suppose an investment firm sells options:

(b) What is the t=0 price (premium) of a call option on stock 2 with exercise price E=8?

Reference no: EM131960726

Questions Cloud

What is the total rate of return on the bond : Consider a bond paying a coupon rate of 11.25% per year semiannually when the market interest rate is only 4.5% per half-year.

Why does the law make such a distinction : Consider the differences between the bilateral contract and the unilateral contract. In the bilateral contract, we have the offeror willing to exchange.

Describe the concept of a neutral interest and its role : Describe the Concept of a Neutral Interest and its role in the formulation of Monetary Policy. How to write a review you should look at book reviews published?

Find the bond price today and six months from now : Find the bond's price today and six months from now after the next coupon is paid. (Do not round intermediate calculations. Round your answers to 2 decimal.

What is the price of a call option on stock : Consider an economy with two dates (t=0,1) and at t=1 there are three states. The following three stocks are traded: x1=(10,0,30) x2=(0,20,40) x3=(20,20,0).

Describe the short-run impact on the spot exchange rate : Show the long run change in the US money market equilibrium using a diagram. Describe the short-run impact on the spot exchange rate.

Calculate the value of the new bond : Consider a corporation who recently filed Chapter 11 bankruptcy (reorganization), Under the reorganization, the company has been allowed to reorganize.

International transfer of hazardous waste to be efficient : What factors need to exist for the international transfer of hazardous waste to be efficient?

Correct predictions of the model : Point out two problems with these policies that perhaps might have panned out in practice to limit the correct predictions of the model.

User Account

All Pages