Questions from General Investment

Q: All else equal, will a call option with a high exercise

All else equal, will a call option with a high exercise price have a higher or lower hedge ratio than one with a low exercise price?

Q: You build a binomial model with one period and assert that over

You build a binomial model with one period and assert that over the course of a year, the stock price will either rise by a factor of 1.5 or fall by a factor of 2/3. What is your implicit assumption a...

Q: Use the put-call parity relationship to demonstrate that an at

Use the put-call parity relationship to demonstrate that an at-the-money European call option on a non-dividend-paying stock must cost more than an at-the-money put option. Show that the prices of the...

Q: Reconsider the determination of the hedge ratio in the two-state

Reconsider the determination of the hedge ratio in the two-state model (see Section 21.2), where we showed that one-third share of stock would hedge one option. What would be the hedge ratio for the f...

Q: Show that Black-Scholes call option hedge ratios increase as the

Show that Black-Scholes call option hedge ratios increase as the stock price increases. Consider a 1-year option with exercise price $50, on a stock with annual standard deviation 20%. The T bill rate...

Q: Why is there no futures market in cement?

Why is there no futures market in cement?

Q: Consider a stock that pays no dividends on which a futures contract

Consider a stock that pays no dividends on which a futures contract, a call option, and a put option trade. The maturity date for all three contracts is T, the exercise price of both the put and the c...

Q: OneChicago has just introduced a single-stock futures contract on Brandex

OneChicago has just introduced a single-stock futures contract on Brandex stock, a company that currently pays no dividends. Each contract calls for delivery of 1,000 shares of stock in 1 year. The T-...

Q: The S&P portfolio pays a dividend yield of 1%

The S&P portfolio pays a dividend yield of 1% annually. Its current value is 2,000. The T-bill rate is 4%. Suppose the S&P futures price for delivery in 1 year is 2,050. Construct an arbitrage strateg...

Q: Noah Kramer, a fixed-income portfolio manager based in the

Noah Kramer, a fixed-income portfolio manager based in the country of Sevista, is considering the purchase of a Sevista government bond. Kramer decides to evaluate two strategies for implementing his...