ee put options are all written on the same stock. One has a delta of -0.2, one a del the three puts by filling in this table. (Negative value should be indicated by a mine Delta

QUESTION 2. Consider a stock valued So at time t = 0, and taking only two possible values S1 = S, or Si = S1 at time t = 1, with S, < I1. a) Compute the initial portfolio allocation (a, 3) of a portfolio made of a units of stock and $B in cash, hedging the call option with strike price K e [S,,3¡] and claim payoff Si – K if Si = 3ı C = (Si – K)* $0 if S = S1, at time t = 1. b) Show that the risky asset allocation a satisfies the condition a € [0, 1]. c) Compute the Superhedging Risk Measure SRMc' of the claim C = (S1 – K)+.

What does it mean to assert that the delta of a call option is 0.7? How can a short position in 1,000 options be made delta neutral when the delta of each option is 0.7?

You see that three put options on a stock with strike prices of $55, $60, and $65 are $3, $5, and $8, respectively. You have the ability to use those options to create a butterfly spread.

A. An option is trading at $5.03. If it has a delta of -.56, what would the price of the option be if the underlying increases by $.75? What would the price of the option be if the underlying decreases by $.55? B. What type of option is this and how? C. With a delta of -.56, is this option ITM, ATM or OTM and how?

If a Put with strike X cannot be purchased in the market, what can you do to re-create or Buy a call, buy a stock and short X/(1+r) t-bills Buy a call, buy a stock and buy X/(1+r)' t-bills Buy a call, short a stock and short X/(1+r) t-bills O Short a call, short a stock and buy X/(1+r)' t-bills Buy a call, short a stock and buy X/(1+r)' t-bills Short a call, buy a stock and short X/(1+r)' t-bills Short a call, buy a stock and buy X/(1+r)' t-bills Short a call, short a stock and short X/(1+r)' t-bills

A trading strategy called INVE3000 strategy, is created by taking two long calls (with strike K_1, premium c_1), one short put (with strike K_2 and premium p_2), and one long put (with strike K_3 and premium of p_3). We know that K_1<K_2<K_3. Please express the break-even stock prices using K_1,K_2,K_3 and c_1,p_2,p_3.

Verify that the strategy of selling one share of stock, selling one put option, and buying one call option always results in a positive win if S + P – C > Ke¯rt.

For each of the following option positions state the risk profile, draw the profit and loss area and show the breakeven price on each graph. a) Long 7.00 call @ 0.30 b) Short 7.00 call @ 0.30 Risk profile: Risk profile: c) Long 7.00 put @ 0.20 d) Short 7.00 put @ 0.20 Risk profile: Risk profile:

The CAPM is one of the most commonly used ways to determine the Select one: O a. Cost of preferred stocks O b. Cost of common stocks O C. Cost of bonds O d. None of the options O e. Cost of loans to search PLL F8 144 F4 F6 F3 50 3 r 4 5 0 6 7 7 v W E R T