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 strike price of both the put and the call is K, and the futures price is F. Prove that if K = F, then the price of the call option equals the price of the put option

Which of the following increases basis risk? Select one: O a. Alarge difference between the futures prices when the hedge is put in place and when it is closed out O b. Dissimilarity between the underlying asset of the futures contract and the hedger's exposure Oc. A reduction in the time between the date when the futures contract is closed and its delivery month O d. None of the above

The basis is defined as the spot price minus the futures price. A trader is hedging the sale of an asset with a short futures position. The basis falls unexpectedly. Which of the following is true? Question 3Answer a. The hedger’s position sometimes worsens and sometimes improves. b. The hedger’s position stays the same. c. The hedger’s position worsens. d. The hedger’s position improves.

4. Answer the following questions on exotic options: (a) Discuss the differences between a combination and a spread when constructing portfolios of options. (b) Define a long strangle and represent the profit function. (c) Design a forward contract on a stock with a particular delivery price and delivery date as a combination of options on the same underlying asset.

If interest rate and stock price move in the same direction, then a futures price implied from spot-futures parity favors

Below is a chart with profit/loss on the vertical axis, and the $/£ exchange rate on the horizontal axis.  The solid line shows the profit/loss schedule for a:     Question 8 options:   put option in isolation (e.g. used for speculating that the pound will depreciate)   None of the above   covered call option (a call option is used as a hedge)   covered put option (a put option is used as a hedge)

Assume that K=61, St =65, t = 0.25 (i.e. time to expiry is 3 months), and the risk-free rate is 0.04. The current price of the put option is p = 4.  What would the price of the call option ‘c’ need to be for put-call parity to hold?

All of the statements below are true of futures contractsexcept that futures contracts: O a. result in predictable gross profits. O b. result in predictable cash flows. O c. eliminate downside risk and upside potential. O d. eliminate downside risk while allowing for upside potential.

Consider a call and a put options with the same strike price and time to expiry. Given that the strike price is exactly equals to the forward price, then:   A. Put and call have same premium   B. The premium of the put is equal to the forward price   C. The premium of the put is equal to the premium of the call plus the present value of the strike   D. The premium of the call is equal to the forward price

Assume a security follows a geometric Brownian motion with volatility parameter = 0.2. Assume the initial price of the security is 21 and the interest rate is 0. It is known that the price of a down-and-in barrier option and a down-and-out barrier option with strike price 19 and expiration 30 days have equal risk-neutral prices. Compute this common risk-neutral price.