EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 22, Problem 37QP
Summary Introduction
To calculate: Value of call option and explain the paradox and way out from this paradox.
Put Delta:
Delta is used to calculate the degree to which an opportunity is exposed to change in the price of the underlying assets that is stock or commodity. Delta is one of the major risk checker used by the option traders.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose that a stock price is currently 35 dollars, and it is known that four months from now, the price will be either 51 dollars or 29 dollars. Find the value of a European call option on the stock that expires four months from now, and has a strike price of 39 dollars. Assume that no arbitrage opportunities exist and a risk-free interest rate of 10 percent.Answer =dollars.
only answer b)
Question 2. (a) Use the Black-Scholes formula to find the current price of a European call option on a stock paying no income with strike 60 and maturity 18 months from now. Assume the current stock price is 50, the lognormal volatility of the stock is σ = 20%, and the constant continuously compounded interest rate is r = 10%.
(b) Repeat part (a) for a European put with strike 60 and maturity 18 months from now
The DB stock currently sells for 185 kr. A one-year put option with strike price200 kr has a premium of 30 kr, and the risk free rate is 15%. What is the priceof a one-year call option with strike price 200 kr if we assume there are notransaction costs and the market is free of arbitrage?
DO IT FAST
Chapter 22 Solutions
EBK CORPORATE FINANCE
Ch. 22 - Options What is a call option? A put option? Under...Ch. 22 - Options Complete the following sentence for each...Ch. 22 - American and European Options What is the...Ch. 22 - Intrinsic Value What is the intrinsic value of a...Ch. 22 - Option Pricing You notice that shares of stock in...Ch. 22 - Options and Stock Risk If the risk of a stock...Ch. 22 - Option Risk True or false: The unsystematic risk...Ch. 22 - Prob. 8CQCh. 22 - Option Price and Interest Rates Suppose the...Ch. 22 - Contingent Liabilities When you take out an...
Ch. 22 - Options and Expiration Dates What is the impact of...Ch. 22 - Options and Stock Price Volatility What is the...Ch. 22 - Insurance as an Option An insurance policy is...Ch. 22 - Equity as a Call Option It is said that the equity...Ch. 22 - Prob. 15CQCh. 22 - Put Call Parity You find a put and a call with the...Ch. 22 - Put- Call Parity A put and a call have the same...Ch. 22 - Put- Call Parity One thing put-call parity tells...Ch. 22 - Two-State Option Pricing Model T-bills currently...Ch. 22 - Understanding Option Quotes Use the option quote...Ch. 22 - Calculating Payoffs Use the option quote...Ch. 22 - Two-State Option Pricing Model The price of Ervin...Ch. 22 - Two-State Option Pricing Model The price of Tara,...Ch. 22 - Put-Call Parity A stock is currently selling for...Ch. 22 - Put-Call Parity A put option that expires in six...Ch. 22 - Put-Call Parity A put option and a call option...Ch. 22 - Pot-Call Parity A put option and a call option...Ch. 22 - Black-Scholes What are the prices of a call option...Ch. 22 - Black-Scholes What are the prices of a call option...Ch. 22 - Delta What are the deltas of a call option and a...Ch. 22 - Prob. 13QPCh. 22 - Prob. 14QPCh. 22 - Time Value of Options You are given the following...Ch. 22 - Prob. 16QPCh. 22 - Prob. 17QPCh. 22 - Prob. 18QPCh. 22 - Black-Scholes A call option has an exercise price...Ch. 22 - Black-Scholes A stock is currently priced at 35. A...Ch. 22 - Equity as an Option Sunburn Sunscreen has a zero...Ch. 22 - Equity as an Option and NPV Suppose the firm in...Ch. 22 - Equity as an Option Frostbite Thermalwear has a...Ch. 22 - Mergers and Equity as an Option Suppose Sunburn...Ch. 22 - Equity as an Option and NPV A company has a single...Ch. 22 - Two-State Option Pricing Model Ken is interested...Ch. 22 - Two-State Option Pricing Model Rob wishes to buy a...Ch. 22 - Two-State Option Pricing Model Maverick...Ch. 22 - Prob. 29QPCh. 22 - Prob. 30QPCh. 22 - Prob. 31QPCh. 22 - Two-State Option Pricing and Corporate Valuation...Ch. 22 - Black-Scholes and Dividends In addition to the...Ch. 22 - Prob. 34QPCh. 22 - Prob. 35QPCh. 22 - Prob. 36QPCh. 22 - Prob. 37QPCh. 22 - Prob. 38QPCh. 22 - Prob. 1MCCh. 22 - Prob. 2MCCh. 22 - Prob. 3MCCh. 22 - Prob. 4MCCh. 22 - Prob. 5MC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Compute the Black-Scholes price of a call option on a stock which does not pay dividends and has the volatility 0.2, if its exercise price is 200 USD and expiration in one year. Interest rate is zero and the price of the stock is 180 USD. Use excel.arrow_forwardWithout using the Black‐Scholes model, compute the price of a European put option on a non‐dividend‐paying stock with the strike price is $70 when the stock price is $73, the risk‐free interest rate is 10% pa, the volatility is 40% pa, and the time to maturity is 6 months?arrow_forwardIn this problem we assume the stock price S(t) follows Geometric Brownian Motion described by the following stochastic differential equation: dS = µSdt + o Sdw, where dw is the standard Wiener process and u = 0.13 and o = current stock price is $100 and the stock pays no dividends. 0.20 are constants. The Consider an at-the-money European call option on this stock with 1 year to expiration. What is the most likely value of the option at expiration? Please round your numerical answer to 2 decimal places.arrow_forward
- Suppose there is also a 1-year European put option on the same stock as in Question 3 with exercise price $30. The current stock price is also $25 and the stock price, in 1 year, will be either $35 (up by 40%) or $20 (down by 20%). The interest rate is 8%. This stock does not pay dividend. What is the value of the put option? Please use risk neutral probability method and assume discrete discounting. (2) What is put-call parity in option pricing? What needs to be true in order for put-call parity to hold?arrow_forwardSuppose that a stock price is currently 56 dollars, and it is known that five months from now, the price will be either 22 percent higher or 22 percent lower. Find the value of a European put option on the stock that expires five months from now, and has a strike price of 55 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 6 percent.arrow_forward(1 point) Suppose that a stock price is currently 57 dollars, and it is known that five months from now, the price will be either 17 percent higher or 17 percent lower. Find the value of a European put option on the stock that expires five months from now, and has a strike price of 54 dollars. Assume that no arbitrage opportunities exist, and a risk-free interest rate of 7 percent. Answer = dollars.arrow_forward
- 6. Let us consider a European option on a stock that does not yield any dividend. Assume that that the price of this option is described by the Black-Scholes model with a drift of 10% per year, volatility of 40% per year. The current price of the stock is S, = £16. The risk-free interest rate on the market is 4% per year. 1) a) Calculate the price of a call option with strike price of £18 and a maturity T of one year. b) Using the put-call parity calculate the price of the corresponding put op- tion. 2) Imagine that in 6 months from now, the stock costs £16.4. Is it worth to wait 6 months before buying the call option above and investing in a saving account what we would have paid for buying the call at the initial time? Would this still apply if the stock costed £19.2 in 6 months from now?arrow_forwardSuppose that a stock price is currently 51 dollars, and it is known that one month from now, the price will be either 6 percent higher or 6 percent lower. Find the value of an American call option on the stock that expires one month from now, and has a strike price of 49 dollars. Assume that no arbitrage opportunities exist, and a risk free interest rate of 10 percentarrow_forwardFind the price of a 1-year European call option with a strike price of $110 if the stock price is $100, the volatility of the stock is 25%, the risk-free rate is 2%, and the stock doesn't pay any dividends.arrow_forward
- Compute the Black-Scholes price of a call option on a stock which does not pay dividends and has the volatility 0.3, if its exercise price is 200 USD and expiration in two year. Interest rate is zero and the price of the stock is 180 USDarrow_forwardA one-month European put option on a non-dividend-paying stock is currently selling for $2.50. The stock price is $47, the strike price is $50, and the risk-free interest rate is 6% per annum. What opportunities, if any, are there for an arbitrageur? no opportunities; the put is fairly priced. an arbitrage strategy exists that could generate profit with a present value of at least $0.25. An arbitrageur should lend $49.50 for one month, buy the stock, and write the put option An arbitrageur should borrow $47.00 for one month, sell the stock, and write the put optionarrow_forwardQuestion 2. (a) Use the Black-Scholes formula to find the current price of a European call option on a stock paying no income with strike 60 and maturity 18 months from now. Assume the current stock price is 50, the lognormal volatility of the stock is o = 20%, and the constant continuously compounded interest rate is r = 10%. (b) Repeat part (a) for a European put with strike 60 and maturity 18 months from now.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
Foreign Exchange Risks; Author: Kaplan UK;https://www.youtube.com/watch?v=ne1dYl3WifM;License: Standard Youtube License