Questions from Business Statistics

Q: Why do higher interest rates lead to higher call option prices but

Why do higher interest rates lead to higher call option prices but lower put option prices?

Q: Suppose a European put price exceeds the value predicted by put–

Suppose a European put price exceeds the value predicted by put–call parity. How could an investor profit? Demonstrate that your strategy is correct by constructing a payoff table showing the outcomes...

Q: Why are the probabilities of stock price movements not used in the

Why are the probabilities of stock price movements not used in the model for calculating an option’s price? What variables are used?

Q: Consider a European call with an exercise price of 50 on a

Consider a European call with an exercise price of 50 on a stock priced at 60. The stock can go up by 15 percent or down by 20 percent in each of two binomial periods. The risk-free rate is 10 percent...

Q: The S&P 500 index is at 1,371.

The S&P 500 index is at 1,371.00, the continuously compounded risk-free rate is 5.12 percent, time to expiration is 55 days, and futures price is 1,376.42. Assuming the futures price is equal to its t...

Q: Use the binomial model and two time periods to determine the price

Use the binomial model and two time periods to determine the price of the DCRB June 130 American put. Use the appropriate parameters from the information given in the chapter (originally given in Chap...

Q: The binomial option pricing model has several advantages, particularly related to

The binomial option pricing model has several advantages, particularly related to illustrating important concepts and practical applications. Identify and discuss three advantages related to illustrat...

Q: Use the Excel spreadsheet BlackScholesMerton Binomial10e.xlsm and determine the value

Use the Excel spreadsheet BlackScholesMerton Binomial10e.xlsm and determine the value of a call option and a put option on a stock currently priced at 100, where the risk-free rate is 5 percent (compo...

Q: Consider three call options identical in every respect except for the strike

Consider three call options identical in every respect except for the strike price of $90, $100, and $110. Specifically, the stock price is $100, the annually compounded risk-free rate is 5 percent, a...

Q: Consider three call options identical in every respect except for the maturity

Consider three call options identical in every respect except for the maturity of 0.5, 1, and 1.5 years. Specifically, the stock price is $100, the annually compounded risk-free rate is 5 percent, and...