D4 2. (a) The stock of Huesca Hardware trades for €l142 per share. The share price bas price volatility of 25%.Huesca Hardware has no plans to pay dividends over the next six months. The risk-free rate is 5% perannum with continuous compounding. Use the Black-Scholes option pricing model to compute:the price of a 6-month European call option written on the stock with a strike price of €125.(i)the price of a 6-month Europcan put option written on the stock with a strike price of e150.(b) Use put-call parity to computethe price of a 6-month European put option written on the stock with a strike price of €125.i)the price of a 6-month European call option written on the stock with a strike price of €150.(c) Pierre expects the price of Huesca Hardware's stock to fall over the next six months. Use the opticnsfrom parts a and b to devise a trading strategy to reflect his expectations. For this strategy:(i)compute the initial (t-0) cashflows.compute the payoffs at maturity.(iii)(ii)compute the upper and lower profit bounds.draw the profit diagram.(iv)

Black Scholes Model With stock current price (S), call option strike price (K), standard deviation…

2. (a) The stock of Huesca Hardware trades for €142 per share. The share prioe has price volatility of 25%. Huesca Hardware has no plans to pay dividends over the next six months. The risk-free rate is 5% per Knnum with continuous compounding. Use the Black-Scholes option pricing model to compute: the price of a 6-month European call option written on the stock with a strike price of €125. (i) the price of a 6-month European put option written on the stock with a strike price of e150. (b) Use put-call parity to compute the price of a 6-month Europcan put option written on the stock with a strike price of e125. (i) the price of a 6-month European call option written on the stock with a strike price of €150. (c) Pierre expects the price of Huesca Hardware's stock to fall over the next six months. Use the opticns otetions For this strateos

2. (a) The stock of Huesca Hardware trades for €142 per share. The share prioe has price volatility of 25%. Huesca Hardware has no plans to pay dividends over the next six months. The risk-free rate is 5% per Knnum with continuous compounding. Use the Black-Scholes option pricing model to compute: the price of a 6-month European call option written on the stock with a strike price of €125. (i) the price of a 6-month European put option written on the stock with a strike price of e150. (b) Use put-call parity to compute the price of a 6-month Europcan put option written on the stock with a strike price of e125. (i) the price of a 6-month European call option written on the stock with a strike price of €150. (c) Pierre expects the price of Huesca Hardware's stock to fall over the next six months. Use the opticns otetions For this strateos

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.A: The Black-scholes Option Pricing Model

Problem 1P

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