Which of the following statements about European option contracts is TRUE? a. Typically American options are cheaper than otherwise similar European options due to the uncertainty regarding the date of exercise. b. One can synthesise a long forward position in the underlying by being long a call and short a put c. A long call position and a short put position both involve buying the underlying and so are equivalent d. The price of an option can be obtained by computing the true probabilities of each state of nature, working out the expected option payoff across those states and then discounting back to the present.

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)

Select all of the following statements that accurately compare or contrast forwards and options:   Group of answer choices   Taking naked long positions in either a call or forward will lead to an overall long position in the underlying security.   Options and forwards always have identical payoffs if the spot price remains the same.   Both options and forwards can be used to reduce exposure to foreign exchange risk.   Going long a naked put option and going short a naked forward both cause unlimited liability.   Both options and forwards require the payment of a premium at the initiation of the contract.   Forward contracts impose obligations on both parties in the transaction. Options contracts only impose an obligation on one party.

h) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity.      i) discuss the boundary conditions on the prices of American and European call option contracts on futures.       j) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures.      k) describe how spot prices are determined using the cost-of-carry model.

Which one of the following statements is true? Multiple Choice O O O O A call with a strike price of $25 and a stock price of $23 has positive intrinsic value. A European style option is more valuable than an American style option. An American style out-of-the-money call option can have a positive value. A $40 put option has more intrinsic value than a $50 put option on the same underlying asset. The time value of an option is equal to the intrinsic value minus the option premium.

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,

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

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.

Topic: Option Pricing When computing, please do not round off. Only final answers must be rounded off to two decimal places Based on the Black-Scholes model, the price of a put option should be P2,800. If the underlying asset has a strike price of P60,000 and a market price of P58,500, how much is the extrinsic value of the option?