This is is the question related to the course "Financial Derivatives and Risk Management" Why are the probabilities of stock price movements not used in the binomialmodel for calculating an option’s price? What variables are used in it?
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- Why are the probabilities of stock price movements not used in the binomial model for calculating an option’s price? Explain in detail."Financial Derivative and Risk Management" Why are the probabilities of stock price movements not used in the Binomial Option Pricing Model for calculating an option's price? What variables are used? Explain in detail with an example.The below question is related to the "Financial Derivatives and Risk Management". Describe the five variables like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration that the Black-Scholes-Merton Formula uses to calculate the price of call and put options. Provide an adequate assumptions to support your explanations.
- Explain in detail with an example how the change of the variables (like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration) of Black-Scholes-Merton Formula affect the price of the option.The below question is of the course "Financial Derivatives and Risk Management". 1. Explain the call-put parity relation and how it is justified. 2. Describe the five variables like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration that the Black-Scholes-Merton Formula uses to calculate the price of call and put options. 3. Explain how the change in these variables like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration affect the price of the option. 4. Explain how these variables like Stock Price, Exercise Price, Risk-Free Rate, Volatility or Standard Deviation, and Time to Expiration are grouped to show the put-call parity relationship and suggest the condition in which there is an arbitrage opportunityFundamental analysis is a method of______________________________to determine intrinsic value of the stock.a. Measuring the intrinsic value of a security using the market indexb. Using qualitative and quantitative factorsc. Using statistical analysis such as standard deviation, coefficients and probabilitiesd. Using historical price movementse. B and C only
- Briefly describe the use of stock options in acompensation plan. What are some potential problems with stock options as a form ofcompensation?Which statement is not true regarding the market portfolio? Group of answer choices a. It includes all publicly-traded financial assets. b. It lies on the efficient frontier. c. All securities in the market portfolio are held in proportion to their market values. d. It is the tangency point between the capital market line and the indifference curve.Do derivatives markets give participants the beneficial opportunity to adjust risk exposures to desired levels, generate returns proportional to movements in the underlying and/or simultaneously take long positions in multiple highly liquid fixed-income treasury bonds? Explain why one or more of the options above are correct and explain why, if any of the remaining options are incorrect.
- Explain with examples of how an option holder gains or losses from an increase in the volatility of the underlying stock priceWhich of the following techniques is used to value stock options? a. Black-Scholes method b. Zero-coupon method c. Weighted-average method d. Expected earnings methodWhich of the following is NOT an external method of interest rate risk management? * A. Using an interest rate swap B. Using financial futures C. Using an off-balance-sheet strategy, such as a forward rate agreement D. Having fixed-interest assets financed by fixed-interest liabilities and equity