Questions from Corporate Finance

Q: You have sold one 45-strike put with 180 days to

You have sold one 45-strike put with 180 days to expiration. Compute and graph the 1-day holding period profit if you delta- and gamma-hedge this position using the stock and a 40-strike call with 180...

Q: Let S = $40, σ = 0.30,

Let S = $40, σ = 0.30, r = 0.08, T = 1, and δ = 0. Also let Q = $60, σQ= 0.50, δQ= 0.04, and ρ = 0.5. What is the price of a standard 40-strike call with S as the underlying asset? What is the price o...

Q: Suppose x1∼ N (2, 0.5) and

Suppose x1∼ N (2, 0.5) and x2 ∼ N (8, 14). The correlation between x1 and x2 is −0.3. What is the distribution of x1+ x2? What is the distribution of x1+ x2?

Q: Using the information in Table 15.5, assume that the

Using the information in Table 15.5, assume that the volatility of oil is 15%. a. Show that a bond that pays one barrel of oil in 1 year sells today for $19.2454. b. Consider a bond that in 1 year has...

Q: As discussed in the text, compensation options are prematurely exercised or

As discussed in the text, compensation options are prematurely exercised or canceled for a variety of reasons. Suppose that compensation options both vest and expire in 3 years and that the probabilit...

Q: Consider the last row of Table 17.1. What is

Consider the last row of Table 17.1. What is the solution for S∗ and S∗ when ks = kr = 0? (This answer does not require calculation.) In the following five problems, assume that the spot price of gold...

Q: Refer to Figure 19.2. a. Verify that

Refer to Figure 19.2. a. Verify that the price of a European put option is $0.0564. b. Verify that the price of an American put option is $0.1144. Be sure to allow for the possibility of exercise at t...

Q: Consider the Level 3 outperformance option with a multiplier, discussed in

Consider the Level 3 outperformance option with a multiplier, discussed in Section 16.2. This can be valued binomially using the single state variable SLevel 3/SS&P, and multiplying the resulting valu...

Q: Using the Merton jump formula, generate an implied volatility plot for

Using the Merton jump formula, generate an implied volatility plot for K = 50, 55, . . . 150. a. How is the implied volatility plot affected by changing αJ to−0.40 or−0.10? b. How is the implied volat...

Q: Suppose that the yield curve is given by y(t)

Suppose that the yield curve is given by y(t) = 0.10 − 0.07e−0.12t, and that the short-term interest rate process is dr(t) = (θ(t) − 0.15r(t)) + 0.01dZ. Compute the calibrated Hull-White tree for 5 ye...