PROBLEM 1: Use the "up-down" binomial pricing method to derive call option values for the following conditions: A. S = 30, K = 34, r = 3%, t = .25, u = 1.5, d = .5 and there is only one step or "jump" before expiration. Assume this is a European option. Show your work.
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- A Vanilla American put and European put options with the same underlying, time to expiry and strike price $26.00, the underlying asset S (0) is $26 and the return over each period R=1.06. CRR notation d=0.8 and u=1.25 Construct a three-step binomial pricing tree for both the Vanilla American and European put options and calculate the premiums. Please Show all working.Topic: Option Pricing When computing, please do not round off. Only final answers must be rounded off to two decimal places Based on the Black-Scholes model, the price of a put option should be P2,800. If the underlying asset has a strike price of P60,000 and a market price of P58,500, how much is the extrinsic value of the option?use binomial option pricing model for this question. suppose the current spot rate for USD/CHF is 0.7. you need to find the one-year call option price of USD/CHF with the exercise price of 0.68 USD/CHF. Assume that our future states will be either 0.7739 U&SD/CHF or 0.6332 USD/CHF. 1) What are the payoffs of a call option (for both states) 2) what is the hedge ratio of the call option?
- Let S = $50, r = 4% (continuously compounded), d = 1%, s = 40%, T = 1.5. In this situation, the appropriate values of u and d are 1.44616 and 0.72332, respectively. Using a 2-step binomial tree, calculate the value of a $55-strike European put option. a. $9.203 b. $11.323 c. $11.205 d. $10.874 e. $10.552find a formula for the price of European call option. if R=0 and S=(0)=X=1. Compute the price for U=0.01 and D=-0.19please compute the two-step binomial model price of a European Call Option with the following characteristics: S = 50 K = 50 Sigma = 30% r = 1.00% T = 6 months D = 0
- Compute the price of the European call option using the R program introduced in class where K = 100, S0 = 85, r = 10%, σ = 25% and T=0.5 Year. a. Use the Black-Scholes-Merton formula. b. Use the Monte-Carlo method. (Decide on the number of iterations and time step by your own) c. Compare the results in part a and b. d. Do the same calculations for the put option price where all parameters are the same[Elasticity of a bull spread] Consider the following information about 50-strike and 60-strike European put options with the same stock and time to expirationStrike price, K Elasticity, Ω Put premium50 −4.9953 3.729560 −3.4267 9.5865Calculate the elasticity of a 50 − 60 European put bull spreadUse Two-State Binomial Option (European) Pricing Model. Suppose you bought a stock today for $38.00. The stock price can either go up by a factor of 1.30 or down by a factor of 0.70 with equal probability in 0.50 years (or 180 days). Suppose the annual risk-free rate is 3.50% and the option exercise price is 35.00. How much should be the Call Option Value that expires in 0.50 years (or 180 days)?Enter your answer in the following format: 1.23Hint: The answer is between 6.74 and 9.38
- 4d) Price the European call having strike 60 GBP. Use the two-periods binomial model with u = 1.1, d = 0.9 and ∆t = 1. Assume that the risk free rate is 5%, and the current price of the underlying asset is 50 GBP.Consider a one-period binomial model in which the underlying is at 65 and can go up 30% and down 22%. The risk-free rate is 8%. The price of the call option with exercise prices of 70 would be: a. 84.50 b. 0.5769 c. 0 d. 7.75 Refer to Problem #1. Suppose that the call is selling for 9 in the market and assume that we would execute an arbitrage transaction, the rate of return on a 10,000 call option would be: a. 16.20% b. 18.19% c. 15.17% d. 16.78%(Advanced Analysis) The demand for commodity X is represented by the equation P=100-2Q and supply by the equation P=10+4Q. If demand changed from P=100-2Q to P=130-Q, the new equilibrium price is?