What do you think about vanilla options as hedging market risk vehicle? In your answer please provide two examples of using vanilla options as hedging instrument.
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- Black-Scholes Model Assume that you have been given the following information on Purcell Industries call options: According to the Black-Scholes option pricing model, what is the option’s value?Please answer the following questions, and justify your opinion by providing peer-reviewed support to your arguments: Compare and contrast the risk versus expected rate of return tradeoff, the security market line, and determination of beta on this basis. Include explanation of all the constituents, namely security market line, risk measure, expected rate of return, risk-free rate of return, and market rate of return. Include hypothetical examples for better clarityExplain what is meant by beta. What risk does beta measure? What is the market return? How is the interpretation of beta related to the market return?
- Real options can be analyzed using a scenarioapproach with decision trees or using the BlackScholes Option Pricing Model. What are the prosand cons of the two approaches? Is one procedure“better” than the other?what are the advantages and disadvantages of covered call and protective put which are options trading strategy?Explain the The Martingale Property and its importance in the Black Scholes Option Pricing model
- Compare the binomial and Black-Scholes option pricing models. What are their differences and similarities? In what circumstances would you prefer one versus the other? Use real market data as well as academic references.When comparing the forward hedge to the options hedge, the MNC can easily determine which hedge is more desirable, because the cost of each hedge can be determined with certainty. Group of answer choices True FalsePlease answer each of the following questions in detail and provide in-text citations in support of your argument. Include examples whenever applicable. Make sure to provide examples for each of the questions below. 1. Please explain the risk vs. expected rate of return tradeoff, the security market line, and the determination of beta. Include an explanation of all the constituents namely, security market line, risk measure, expected rate of return, risk-free rate of return, and the market rate of return. Include hypothetical examples for better clarity. 2. Explain the weighted average cost of capital (WACC) and its significance and include hypothetical examples for better clarity.
- What are the similarities and differences between the CML and SML as models of the risk return trade-off?Compare the binomial and Black-Scholes option pricing models. What are their differences and similarities? In what circumstances would you prefer one versus the other? Support your arguments using references.Discuss the difference between Systematic Risk and Unsystematic Risk. What kind of strategies wecan use for creating an efficient portfolio?
