a. Construct a portfolio of European put options with the payoff at maturity as in the picture. The portfolio can include both long (buy) and short (sell) positions. Describe how (specify clearly who exercise and how many they buy or sell at each price level and number of options, strike price, etc.)

Real Options & Game Theory: The value of a call option and a put option is influenced by the following variables: - Underlying asset value- Strike Price- Variance of Underlying asset- Time to Expiration What effect would an increase in each of these variables have on the value of a calloption and a put option?

Options have a unique set of terminology. Definethe following terms:(3) Strike price or exercise price

i)identify, analyze and discuss the following characteristics of an American put option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration.    ii) analyze and discuss the following factors on an American put option: time to expiration, exercise price, interest rate, volatility, and dividends.  iii) identify, analyze, and discuss the following characteristics of a European call option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration.  iv) analyze and discuss the following factors on a European call option: time to expiration, exercise price, interest rate,

11.) Define Futures Contracts, and Options. How are these products commonly used as portfolio diversification mechanisms?

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a)analyze and discuss the following factors on a European call option: time to expiration, exercise price, interest rate, volatility, and dividends.  b) identify, analyze, and discuss the following characteristics of a European put option: maximum value, intrinsic value, time value, lower bound, and payoff at expiration.  c) analyze and discuss the following factors on a European put option: time to expiration, exercise price, interest rate, volatility, and dividends.  d) discuss the relationship between American and European option prices.  e) derive the put-call parity and discuss its implications.    f) discuss the characteristics of a currency option.

Describe how a typical stock option plan works. What are someproblems with a typical stock option plan?

Identify the key parameters that influence option price. Discuss the impact of a rise and fall in the value of each parameter on the prices of put and call options.

Consider a portfolio consisting of one share and several European call options with the same expiry, but different strike prices. The payoff diagram of the portfolio is given by the following figure. Find the strike prices and the positions of each call option. Portfolio payoff 25 20 15 10 15 20 25 30 Stock price Payoff