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Question
Assume a stock price of S(0) = $62.00, r = 0.05, σ = 0.30, and dividend = 0. What is the price of a claim that pays
? Use formula 20.29.A) $7.59
B) $8.59
C) $9.59
D) $10.59
Answer
This answer is hidden. It contains 1 characters.
Related questions
Q:
Assume the following: LN(S) and LN(Q) have a correlation coefficient of -0.65, S(0) = 55, Q(0) = 60, r = 0.04, σs = 0.22 σQ = 0.15, and dividends = 0. Using formula 20.39, what is the price of a claim that pays Q/?
A) $8.16
B) $9.16
C) $10.16
D) $11.16
Q:
Assume the following: LN(S) and LN(Q) have a correlation coefficient of 0.40, S(0) = 60, Q(0) = 60, r = 0.05, σs = 0.30 σQ = 0.25, and dividend = 0. Using formula 20.39, what is the price of a claim that pays ?
A) $243.96
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C) $479.96
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What advantage does a variance reduction technique offer?
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Why are covariances and correlations relevant to simulation development?
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If using Monte Carlo simulation, what is a typical number of iterations employed in the model?A) 1B) 10C) 1,000D) 1,000,000
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A stock owned by a portfolio has a bankruptcy probability of 1% per year. Using a Poisson distribution, what is the probability that this firm will not declare bankruptcy over the upcoming 10 years?
A) 60%
B) 70%
C) 80%
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Q:
Monte Carlo simulation assumes all assets earn:
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Given X1 = N (0, 1) and X2 = N (0.5, 8), what is the mean of ex2?
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B) 79.97
C) 89.97
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Why do we assume a lognormal distribution in option pricing?
Q:
Given a mean of -4.3 and a standard deviation of 26, what is the equivalent draw from a normal distribution for a standard normal sample variable of 0.67?
A) -13.12
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D) 23.12
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What is the area under the standard normal distribution curve and is less than 0.654?
A) 0.5115
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C) 0.7434
D) 0.8283
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How are call and put options used to value starting, stopping, and restarting commodity extraction projects?
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What two components go into valuing an infinite commodity reserve?
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A) $349
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Q:
The current price of silver is $32.00 per ounce. The effective lease rate and risk free rate are 3.0% and 4.0%, respectively. If the cost to mine one ounce of silver is a constant $25.00, what is the trigger price per ounce at which the silver will be mined?
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Q:
The Nikkei index is 22,550, K = 21,000, σ = 0.19, rf = 0.04, S = 0.10, r = 0.08 and
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The current Nikkei index price is 21,200. Assume σ = 0.13, r = 0.05 and div = 0.015. If
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B) $18.97
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Q:
The Buckingham Casino offers to give every gambler one share of Buckingham Casino Corp. stock if the price drops below $40.00, as an incentive to spur business. If S = $45.25, σ = 0.15,
r = 0.05 and div = 0, how much profit or loss is Buckingham incurring if they charge $0.25 to participate in this wager?
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Q:
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Q:
What does Girsanov's theorem tell us about drift and Brownian motion?
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For a utility function that exhibits decreasing martingale utility, the martingale utility is high when:
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B) Consumption and utility are high
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D) Consumption is high and utility is low
Q:
Briefly define a terminal boundary condition.
Q:
Mary wagers to pay one share of stock to Matt if the price at expiration in 1 year is above $75.00. Assume S(0) = 60.00, σ = 0.15, r = 0.04, and dividend rate = 0.01. What is the value of Mary's bet?
A) $6.55
B) $7.55
C) $8.55
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Q:
What is the relationship of the Sharpe ratios and risk premiums between stocks and options?
Q:
What are two important implications of assuming that prices follow a geometric Brownian motion?
Q:
When hedging a foreign currency position, what makes a down-and-out put unattractive?
Q:
Assume S = $42, K = 45, div = 0, r = 0.04, σ = 0.48, and 80 days until expiration. What is the premium on a knock-out put option with a down-and-out barrier of $44?
A) $2.13
B) $3.13
C) $3.47
D) $4.07
Q:
What is the payoff on a 75 strike Asian option given it is a geometric average price call? The recent prices are 72, 76, 74, 78, and 78.
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B) 0.56
C) 0.66
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Q:
Assume S = $33.00, σ = 0.32, r = 0.06, div = 0.01, on a $35 strike call. Given delta = 0.3854 and gamma = 0.0847, what is the delta-gamma approximation for the call price on a $0.50 stock price increase? Assume 68 days until expiration.
A) $1.34
B) $1.36
C) $1.38
D) $1.40
Q:
What is the total dollar cost to create a delta hedge position against a 200 short call position? Assume calls are priced at $4.16, the delta is 0.7644, and stock price is $73.00.
A) $9,880
B) $10,328
C) $11,168
D) $12,660