Questions from Business Statistics

Q: What is the (risk-neutral) expected life for the

What is the (risk-neutral) expected life for the employee stock option in Example 16.2? What is the value of the option obtained by using this expected life in Black–Scholes– Merton? Example 16.2 Sup...

Q: A company has granted 2,000,000 options to its

A company has granted 2,000,000 options to its employees. The stock price and strike price are both $60. The options last for 8 years and vest after 2 years. The company decides to value the options u...

Q: A company uses delta hedging to hedge a portfolio of long positions

A company uses delta hedging to hedge a portfolio of long positions in put and call options on a currency. Which of the following would give the most favorable result? (a) A virtually constant spot ra...

Q: A company has granted 1,000,000 options to its

A company has granted 1,000,000 options to its employees. The stock price and strike price are both $20. The options last 10 years and vest after 3 years. The stock price volatility is 30%, the risk-f...

Q: (a) Hedge funds earn a management fee plus an incentive

(a) Hedge funds earn a management fee plus an incentive fee that is a percentage of the profits, if any, that they generate (see Business Snapshot 1.3). How is a fund manager motivated to behave with...

Q: The Dow Jones Industrial Average on July 20, 2016, was

The Dow Jones Industrial Average on July 20, 2016, was 18,580 and the price of a September 185 (European) call option on the index was $3.35. Use the DerivaGem software to calculate the implied volati...

Q: Suppose that the spot price of the Canadian dollar is U.

Suppose that the spot price of the Canadian dollar is U.S. $0.95 and that the Canadian dollar/U.S. dollar exchange rate has a volatility of 8% per annum. The risk-free rates of interest in Canada and...

Q: The spot price of an index is 1,000 and the

The spot price of an index is 1,000 and the risk-free rate is 4%. The prices of 3-month European call and put options when the strike price is 950 are 78 and 26. Estimate (a) the dividend yield and (b...

Q: Suppose the USD/euro exchange rate is 1.3000.

Suppose the USD/euro exchange rate is 1.3000. The exchange rate volatility is 15%. A U.S. company will receive 1 million euros in three months. The euro and USD risk free rates are 5% and 4%, respecti...

Q: It is February 4. July call options on corn futures with

It is February 4. July call options on corn futures with strike prices of 260, 270, 280, 290, and 300 cost 26.75, 21.25, 17.25, 14.00, and 11.375, respectively. July put options with these strike pric...