Questions from Corporate Finance

Q: The box on page 282 discusses the following result: If the

The box on page 282 discusses the following result: If the strike price of a European put is set to equal the forward price for the stock, the put premium increases with maturity. a. How is this resul...

Q: For the lookback call: a. What is the value

For the lookback call: a. What is the value of a lookback call as St approaches zero? Verify that the formula gives you the same answer. b. Verify that at maturity the value of the call is ST − ST .

Q: For this problem, use the implied volatilities for the options expiring

For this problem, use the implied volatilities for the options expiring in January 2005, computed in the preceding problem. Compare the implied volatilities for calls and puts. Where is the difference...

Q: What volatilities were used to construct each tree? (You computed

What volatilities were used to construct each tree? (You computed zero-coupon bond prices in the previous problem; now you have to compute the year-1 yield volatility for 1-, 2-, 3-, and 4-year bonds....

Q: Using the same assumptions as in Problem 26.12, compute

Using the same assumptions as in Problem 26.12, compute the 10-day 95% VaR for a claim that pays $3m each year in years 7–10. Problem 26.12 Suppose the 7-year zero-coupon bond has a yield of 6% and y...

Q: Using Monte Carlo simulation, reproduce Tables 27.10 and 27

Using Monte Carlo simulation, reproduce Tables 27.10 and 27.11. Produce a similar table assuming a default correlation of 25%.

Q: Pick a derivatives exchange such as CME Group, Eurex, or

Pick a derivatives exchange such as CME Group, Eurex, or the Chicago Board Options Exchange. Go to that exchange’s website and try to determine the following: a. What products the exchange trades. b....

Q: Suppose you enter into a put ratio spread where you buy a

Suppose you enter into a put ratio spread where you buy a 45-strike put and sell two 40-strike puts. If you delta-hedge this position, what investment is required? What is your overnight profit if the...

Q: Suppose the stock price is $40 and the effective annual interest

Suppose the stock price is $40 and the effective annual interest rate is 8%. Draw payoff and profit diagrams for the following options: a. 35-strike put with a premium of $1.53. b. 40-strike put with...

Q: Golddiggers has zero net income if it sells gold for a price

Golddiggers has zero net income if it sells gold for a price of $380. However, by shorting a forward contract it is possible to guarantee a profit of $40/oz. Suppose a manager decides not to hedge and...