Questions from Business Statistics

Q: Use the software DerivaGem to verify that Figures 11.1 and

Use the software DerivaGem to verify that Figures 11.1 and 11.2 are correct.

Q: ‘‘Once we know how to value options on a stock paying

‘‘Once we know how to value options on a stock paying a dividend yield, we know how to value options on stock indices and currencies.’’ Explain this statement.

Q: A stock index is currently 300, the dividend yield on the

A stock index is currently 300, the dividend yield on the index is 3% per annum, and the risk-free interest rate is 8% per annum. What is a lower bound for the price of a six month European call optio...

Q: A fund manager has a portfolio worth $50 million with a

A fund manager has a portfolio worth $50 million with a beta of 0.87. The manager is concerned about the performance of the market over the next 2 months and plans to use 3-month futures contracts on...

Q: A currency is currently worth $0.80 and has a

A currency is currently worth $0.80 and has a volatility of 12%. The domestic and foreign risk-free interest rates are 6% and 8%, respectively. Use a two-step binomial tree to value (a) a European fou...

Q: Calculate the value of a three-month at-the-

Calculate the value of a three-month at-the-money European call option on a stock index when the index is at 250, the risk-free interest rate is 10% per annum, the volatility of the index is 18% per a...

Q: Calculate the value of an eight-month European put option on

Calculate the value of an eight-month European put option on a currency with a strike price of 0.50. The current exchange rate is 0.52, the volatility of the exchange rate is 12%, the domestic risk-fr...

Q: A foreign currency is currently worth $1.50. The

A foreign currency is currently worth $1.50. The domestic and foreign risk-free interest rates are 5% and 9%, respectively. Calculate a lower bound for the value of a six-month call option on the curr...

Q: Consider a two-month futures call option with a strike price

Consider a two-month futures call option with a strike price of 40 when the risk-free interest rate is 10% per annum. The current futures price is 47. What is a lower bound for the value of the future...

Q: Consider a four-month futures put option with a strike price

Consider a four-month futures put option with a strike price of 50 when the risk-free interest rate is 10% per annum. The current futures price is 47. What is a lower bound for the value of the future...