finance h.w help
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06_assignment.xlsxFact Sheet
| FACTS | |
| Stock Price | 40.00 |
| Standard deviation | 0.40 |
| Strike Price | 38.00 |
| Annual Risk Free Rate | 5.0% |
| Number of years | 1.00 |
| Number of months | 12 |
| number of months per period | 6 |
| movements per period | 2 |
| +c0 | |
| +p0 | |
| +S0 | |
| +X/e^(rt) | |
| -c0 | |
| -p0 | |
| -S0 | |
| -X/e^(rt) |
Worksheet
| FACTS | |||||||||||
| Stock Price | 40.00 | ||||||||||
| Standard deviation | 0.40 | ||||||||||
| Put Option with a Strike Price | 38.00 | ||||||||||
| Annual Risk Free Rate | 5.0% | ||||||||||
| Number of years | 1.00 | ||||||||||
| movements per period | 2.00 | ||||||||||
| 1) By what factor can the stock move up or down .i.e what are "u" and "d"? | |||||||||||
| u= | d= | ||||||||||
| 2) What is the stocks risk neutral probablities? | |||||||||||
| p | 1-p= | ||||||||||
| What are the possible values the stock price can be over this coming year. The stock will move once in 6 months and then again in 12. | |||||||||||
| Today | 6 months | 12 months | |||||||||
| Suu | |||||||||||
| Su | |||||||||||
| S0 | Sud | ||||||||||
| Sd | |||||||||||
| Sdd | |||||||||||
| There is a put option on the stock with a strike price of X. The option will mature in one year. What are the put options payoffs at the end of one year? Use the stock price in one year to determine the options payoff. | |||||||||||
| 6 months | 12 months | ||||||||||
| fuu | |||||||||||
| fu | - 0 | ||||||||||
| f0 | - 0 | fud | |||||||||
| fd | - 0 | ||||||||||
| fdd | |||||||||||
| 3.a) Using the risk neutral probablities determine the value of the derivative in the up state | |||||||||||
| Up State | |||||||||||
| 6 months | 12 months | ||||||||||
| Suu | - 0 | ||||||||||
| fuu | - 0 | ||||||||||
| Su | - 0 | ||||||||||
| fu | |||||||||||
| Sud | - 0 | ||||||||||
| fud | - 0 | ||||||||||
| 3.b) Using the risk neutral probablities determine the value of the derivative in the down state | |||||||||||
| Down State | |||||||||||
| 6 months | 12 months | ||||||||||
| Sdu | - 0 | ||||||||||
| fdu | - 0 | ||||||||||
| Sd | - 0 | ||||||||||
| fd | |||||||||||
| Sdd | - 0 | ||||||||||
| fdd | - 0 | ||||||||||
| 4) Using the risk neutral probablities determine the value of the derivative today. | |||||||||||
| Today | 6 Months | ||||||||||
| Su | - 0 | ||||||||||
| fu | - 0 | ||||||||||
| So | - 0 | ||||||||||
| fo | |||||||||||
| Sd | - 0 | ||||||||||
| fd | - 0 | ||||||||||
| 5)Using put call parity determine the value of a call option with the same strike price as the put option | |||||||||||
| Formula --> | 1 | = | 3 | 8 | 2 | ||||||
| Calculate the call's value | = | ||||||||||
| 6) Create a data table that shows how the call and put option prices react to changes in the risk free rate, standard devation of the stock price, and the strike price. | |||||||||||
| Risk free rate | standard deviation | strike price | |||||||||
| put | call | put | call | put | call | ||||||
| 2% | 20% | $ 8.00 | |||||||||
| 3% | 30% | $ 18.00 | |||||||||
| 4% | 40% | $ 28.00 | |||||||||
| 5% | 50% | $ 38.00 | |||||||||
| 6% | 60% | $ 48.00 | |||||||||
| 7% | 70% | $ 58.00 | |||||||||
| 8% | 80% | $ 60.00 | |||||||||
Using the risk neutral probabilities determine the value of a put option with a strike price of $38. The current price of the underlying asset is $40 and its standard deviation is 40%. The risk free rate is 5% and the asset price can move twice over the next 12 months.
Turn-in page
| NAME | |||||||
| 1) What are the values for "u" and "d" | |||||||
| u= | 0.0000 | d= | 0.0000 | ||||
| 2) What are the values for "p" and "1-p" | |||||||
| p= | 0.0000 | 1-p | 0.0000 | ||||
| 3) What is the value of the derivative in the up-state and the down-state | |||||||
| fu= | 0.00 | fd= | 0.00 | ||||
| 4) What is the value of the derivative today? | |||||||
| f0= | 0.00 | ||||||
| 5) Using put call parity determine the value of a call option with the same strike price as the put option | |||||||
| Formula --> | 1 Treanor, Stephen: Use the drop down boxes to determine the formula for call option. | = | 3 | 8 | 2 | 13 | |
| Calculate the call's value | - 0 | = | - 0 | - 0 | - 0 | ||
| 6) Create a data table that shows how the call and put option prices react to changes in the risk free rate, standard deviation of the stock price, and the strike price. | |||||||
| Risk free rate | standard deviation | ||||||
| put | call | put | call | ||||
| 0 | 0 | 0 | 0 | ||||
| 2% | - 0 | - 0 | 20% | - 0 | - 0 | ||
| 3% | - 0 | - 0 | 30% | - 0 | - 0 | ||
| 4% | - 0 | - 0 | 40% | - 0 | - 0 | ||
| 5% | - 0 | - 0 | 50% | - 0 | - 0 | ||
| 6% | - 0 | - 0 | 60% | - 0 | - 0 | ||
| 7% | - 0 | - 0 | 70% | - 0 | - 0 | ||
| 8% | - 0 | - 0 | 80% | - 0 | - 0 | ||
| strike price | |||||||
| put | call | 7) | |||||
| 0 | 0 | a) When interest rates rise the value of the call option ____ in value. | |||||
| $ 8.00 | - 0 | - 0 | |||||
| $ 18.00 | - 0 | - 0 | |||||
| $ 28.00 | - 0 | - 0 | b) When the standard devation of the option increases the value of option ____ in value. | ||||
| $ 38.00 | - 0 | - 0 | |||||
| $ 48.00 | - 0 | - 0 | |||||
| $ 58.00 | - 0 | - 0 | c) As the strike price increases the put option price _______. | ||||
| $ 60.00 | - 0 | - 0 | |||||
