In binomial approach of option pricing model, fourth step is to create : a. equalize domain of payoff b. equalize ending price c. riskless investment d. high risky investment
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In binomial approach of option pricing model, fourth step is to create :
a. equalize domain of payoff
b. equalize ending price
c. riskless investment
d. high risky investment
Step by step
Solved in 2 steps
- a) discuss the relationship between the up-factor (u), down-factor (d), risk-free rate (r), and binomial probability (p) in the binomial model. b) discuss the assumptions in Black-Scholes-Merton model (BSM) from memory. c) discuss the variables in the BSM formula and explain how they affect call option pricing. d) define historical volatility and implied volatility. e) demonstrate how to reduce risk with gamma hedging.a. Explain the covered call options strategy b. Graphically show a covered call options strategy, including payoff. Explain why an investor mayuse this option strategy.c. Using put-call parity, explain the shape of the payoff line (in part (a) of this question). Whatoption position does it look like and why?Rm-R is read as: O a. The return offered by the market over and above the risk-free rate O b. Market risk premium- Oc. Excess return on the market C. Od. All options are correct
- a)explain the concept of the delta normal method for calculating VAR when options are present in the portfolio. b)explain the basic concepts of the historical method and the Monte Carlo simulation method of calculating VARs. c)discuss the benefits and limitations of VAR. d)define credit risk (default risk). e)explain how option pricing theory can be used in valuing default risk.Which of the following are NOT the determinants of option prices? Select one:i. Average returnii. Time to maturityiii. Underlying priceiv. Interest ratesv. Exercise pricevi. VolatilityTheta measures an option's: Multiple Choice O O intrinsic value. volatility. rate of time decay. sensitivity to changes in the value of the underlying asset. sensitivity to changes in the risk-free rate.
- Which of the following is not a discounted technique Select one: a. Net present value b. Discounted Payback period c. None of the option d. Internal Rate of Return e. Profitability indexMarket's Risk premium measures Select one: a. The market return plus the risk free rate. b. The risk free rate and market portfolio rate of return c. The risk free rate plus the risk premium d. The change in the risk free rate and the market return e. The difference between return on market portfolio and risk-free rateProvide a descriptive formula for each of the following (e.g., Total risk =?+?): a. Total risk= b. Discount rate= c. Adjusted NPV=
- b. Explain the impact of option volatility on option pricing.The VIX measures Select one: a.Realized volatility B. Current volatility C. Historical volatility D. Implied volatilityWhat is the correct way to determine the value of a long forward position at expiration? The value is the price of the underlying ... ... multiplied by the forward price. ... divided by the forward price. ... plus the forward price. ... minus the forward price please need type answer not an image