4. Which of the below represents the value of an American option in each state? max(Payoff if exercised, Value if held) Payoff if exercised Risk-neutral probability min(Payoff if exercised, Value if held)
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- Which of the following statements about European option contracts is true? Question 2Answer a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present. c. A long call position and a short put position both involve buying the underlying and so are equivalent d. One can synthesise a long forward position in the underlying by being long a call and short a putState and prove the Put-Call Parity Theorem that gives the relation between a European Call and a Put option price where the options are written on the same stock, same time to maturity and have the same exercise price.i)identify, analyze and discuss the following characteristics of an American put option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. ii) analyze and discuss the following factors on an American put option: time to expiration, exercise price, interest rate, volatility, and dividends. iii) identify, analyze, and discuss the following characteristics of a European call option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. iv) analyze and discuss the following factors on a European call option: time to expiration, exercise price, interest rate,
- Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.a)analyze and discuss the following factors on a European call option: time to expiration, exercise price, interest rate, volatility, and dividends. b) identify, analyze, and discuss the following characteristics of a European put option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration. c) analyze and discuss the following factors on a European put option: time to expiration, exercise price, interest rate, volatility, and dividends. d) discuss the relationship between American and European option prices. e) derive the put-call parity and discuss its implications. f) discuss the characteristics of a currency option.Under the assumptions of the Black-Scholes model, which value does not affect the price of a European call option: Select one: a. the interest rate r b. the spot price S c. the strike price K d. the return of the stock µ e. the volatility of the stock σ
- Which of the following statements is correct? A) The gamma of a long position in a European option takes the highest value for deep in-the-money options. B) The delta of a short position in a European put is between -1 and 0. C) The delta of a long position in a deep in-the-money European put is close to zero. D) The gamma and the vega of a long position in a European put are positive. Please explain and justify your choice.Question 9 Which of the following is not a determinant of option value? A) The exercise price B) The price of the underlying asset C) The volatility of underlying asset D) The willingness of government to increase interest rate.31-Which one, from the given options, predicts the purchasing power parity theory? O a. The country with the higher inflation will be subject to an appreciation of its currency O b. The country with the higher inflation will be subject to a depreciation of its currency O c. The country with the higher inflation will be subject to a depreciation of its interest rate O d. None of the options
- For a share S the market quotes put options with a given strike K and expiration T in both european and american styles. Use an arbitrage argument to construct a formula relating the price of the european put option to the price of the american put option with the same strike and expiration.A) Does this model satisfy the no-arbitrage assumption? B) Calculate the risk-neutral probabilities of up and down movements in the share price. C) Determine the no-arbitrage price of a European call option on the share with strike price K=70 and expiry time T=2.Which of the following can be used to create a long position in a European put option on a stock? A. Sell call on the stock and buy stock B. Sell call option on the stock and sell stock C. Buy call option on the stock and buy stock D. Buy call on the stock and short stock.