Year 12s: what will be the first way you research your future options? >>

help w/ financial derivatives exercises (i'm lost)

Hi everyone! I've been checking these forums for quite a long time and I think you guys may be able to help me with some exercises I have from a Financial derivatives course I'm taking this year at uni. The professor has not given us any explanation and my knowledge of derivatives is not much.

The GBM process dS/S = 0.07dt + 0.2dz
reflects the evolution of a risky asset with current price S0 = 100. Suppose that the (continuously compounded) risk free
rate equals 4%.
a) Price an European call with strike k = 90 and maturity in one year.
b) Solve a) for an European call whose underlying asset is a future contract with maturity in 24 months (recall that F = So*e^(0.02×2)).
c) Compute the Greeks (delta, gamma,sigma and nu) of the option in b).

The future contract with current value F = 500 is the underlying asset of several options with maturity in one year. The implied volatilities for strikes 450 and 550 are 39% and 41% respectively. Suppose that the risk-free rate is negligible:
a) Price an European ATM call option.
b) A delta−hedging strategy of the call purchase is not rebalanced in one week. Compute the possible capital losses if the future price variation equals 10%.

Thanks in advance

Quick Reply

Latest

Articles for you

Edexcel A-Level Economics Paper 1 - Unofficial Mark Scheme - 18 May 2023

What is an LLM and how could it benefit your career?

Powerful questions business students forget to ask their career advisers

Why I chose a law degree and what studying law was like

help w/ financial derivatives exercises (i'm lost)

Quick Reply

Related discussions

Latest

Trending

Trending

Articles for you