Questions and Answers of Derivative Pricing

You are given the following with respect to a public company:• The common shares of the company were trading at 100 as of December 31, 2015.• No dividends are paid.• An industry analyst has
For a binomial option pricing model, you are given the following information:• The current stock price is $110.• The strike price is $100.• The interest rate is 5% (continuously compounded)•
A three-month European call is modeled by a single period binomial tree using the following parameters:• Continuously compounded risk-free rate = 4%• Dividend = 0• Annual volatility = 15%•
You use the following information to construct a binomial forward tree for modeling the price movements of a stock:(i) The length of each period is 1 year.(ii) The current stock price is 190.(iii)
A one-year European call option is currently valued at 0.9645. The following parameters are given.• Current stock price = 10• Continuously compounded risk-free rate = 6%• Continuously
For a 10-period binomial stock price model, you are given:(i) The length of each period is one year.(ii) The current stock price is 1,000.(iii) At the end of every year, the stock price will either
You are to estimate a nondividend-paying stock’s annualized volatility using its prices in the past nine months.Calculate the historical volatility for this stock over the period.(A) 83%(B) 77%(C)
Let S(t) be the time-t price of a nondividend-paying stock. For a three-period binomial stock price model, you are given:(i) The length of each period is one year.(ii) S(0) = 100.(iii) u = 1.1, where
For a two-period binomial model for stock prices, you are given:(i) The length of each period is one year.(ii) The current price of a nondividend-paying stock is $150.(iii) u = 1.25, where u is one
For a two-period binomial model for stock prices, you are given:(i) The length of each period is one year.(ii) The current price of a nondividend-paying stock is $40.(iii) u = 1.05, where u is one
For a binomial forward tree modeling the price movements of a stock, you are given:(i) The length of each period is 6 months.(ii) The current price of a nondividend-paying stock is $9,000.(iii) The
You use the following information to construct a binomial forward tree for modeling the price movements of a nondividend-paying stock:(i) The length of each period is 6 months.(ii) The current stock
You use the following information to construct a binomial forward tree for modeling the price movements of a stock.(i) The length of each period is 4 months.(ii) The current stock price is 100.(iii)
The Ashwaubenon Company (Ash Co) needs to raise capital to support its rapidly growing business. One proposal is to publicly issue a certain number of equity units, each of which consists of one
You use the following information to construct a binomial forward tree for modeling the price movements of a stock:(i) The length of each period is 4 months.(ii) The current stock price is 55.(iii)
You use the following information to construct a two-period binomial forward tree for modeling the movements of the dollar-euro exchange rate:(i) The current dollar-euro exchange rate is
For a four-period binomial tree model for the dollar/pound exchange rate, you are given:(i) The length of each period is 3 months.(ii) The current dollar/pound exchange rate is 1.4.(iii) u = 1.1 and
You use the following information to construct a binomial tree for modeling the price movements of a futures contract on the S&V 150:(i) The length of each period is 6 months.(ii) The initial futures
You use the following information to construct a one-period binomial forward tree for modeling the price movements of a nondividend-paying stock:(i) The current stock price is 82.(ii) The stock’s
You use the following information to construct a binomial forward tree for modeling the price movements of a nondividend-paying stock:(i) The length of each period is 4 months.(ii) The current stock
You use the following information to construct a binomial forward tree for modeling the price movements of a nondividend-paying stock:(i) The length of each period is 4 months.(ii) The current stock
Assume the Black-Scholes framework. Let S(t) denote the time-t price of a nondividend-paying stock. You are given: (i) The current stock price is 38. (ii) The stock’s volatility is 35%. (iii)
You are given the following information about a European call option. • The current stock price is $35.• The exercise price is $40.• The option matures in 6 months.• The expected return on
Consider a nondividend-paying stock whose current price is 100.The stock-price process is a lognormal process with volatility 30%.The continuously compounded expected return on the stock is 10%.The
You are given the following information about a nondividend-paying stock:(i) The current stock price is 100.(ii) Stock prices are lognormally distributed.(iii) The continuously compounded expected
Assume the Black-Scholes framework. You are given:(i) The current stock price is 100.(ii) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 2.5%.(iii)
Assume the Black-Scholes framework.You are given the following information for a stock that pays dividends continuously at a rate proportional to its price.(i) The current stock price is 0.25.(ii)
Two actuaries, A and B, use a two-period binomial forward tree to compute the prices of a European call and a European put using different parameters.You are given:Describe the relationship between

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