Questions from Business Statistics

Q: Consider a European call and a European put with the same strike

Consider a European call and a European put with the same strike price and time to maturity. Show that they change in value by the same amount when the volatility increases from a level
to a new lev...

Q: Using Table 20.2, calculate the implied volatility a trader

Using Table 20.2, calculate the implied volatility a trader would use for an 11-month option with K=S0 ¼ 0:98.

Q: A 1-year American call option on silver futures has an

A 1-year American call option on silver futures has an exercise price of $9.00. The current futures price is $8.50, the risk-free rate of interest is 12% per annum, and the volatility of the futures p...

Q: The current value of the British pound is $1.60

The current value of the British pound is $1.60 and the volatility of the pound/dollar exchange rate is 15% per annum. An American call option has an exercise price of $1.62 and a time to maturity of...

Q: The average funding cost for a company is 5% per annum

The average funding cost for a company is 5% per annum when the risk-free rate is 3%. The company is currently undertaking projects worth $9 million. It plans to increase its size by undertaking $1 mi...

Q: Answer the following questions concerned with the alternative procedures for constructing trees

Answer the following questions concerned with the alternative procedures for constructing trees in Section 21.4: Show that the binomial model in Section 21.4 is exactly consistent with the mean and va...

Q: Estimate delta, gamma, and theta from the tree in Example

Estimate delta, gamma, and theta from the tree in Example 21.3. Explain how each can be interpreted.

Q: A four-step Cox–Ross–Rubinstein binomial tree is

A four-step Cox–Ross–Rubinstein binomial tree is used to price a one-year American put option on an index when the index level is 500, the strike price is 500, the dividend yield is 2%, the risk-free...

Q: A company has a position in bonds worth $6 million.

A company has a position in bonds worth $6 million. The modified duration of the portfolio is 5.2 years. Assume that only parallel shifts in the yield curve can take place and that the standard deviat...

Q: Consider a position consisting of a $300,000 investment in

Consider a position consisting of a $300,000 investment in gold and a $500,000 investment in silver. Suppose that the daily volatilities of these two assets are 1.8% and 1.2%, respectively, and that t...