3. Calculate the price of the first Citigroup trade in Exhibit 5. a. Use a Binomial tree with 3 steps (1 step = 1 year). Assume cash dividends of $0.18 are paid at the end of the first and second year. Suppose the annualized volatility is 39.2%. b. Use the Black-Scholes model with a volatility of 39.2% and a dividend yield of 2.6%.

Exhibit 5

The Nine Elephant Trades

	Underlying stock	Trade Structure	Trade Date	Expiration Date	Number of Shares	Deal Value	Premium per Share
1.	Citigroup	forward + put	1/25/08	1/21/11	11,207,051	$100,000,001	$8.92
2.	Citigroup	forward + put	1/29/08	1/29/11	11,093,197	$100,000,002	$9.01
3.	EdF	forward + put + short call	2/19/08	2/7/11	3,161,130	$73,768,695	$23.34
4.	EdF	forward + put + short call	2/22/08	2/15/11	3,155,563	$65,964,436	$20.90
5.	EdF	forward + put	2/27/08	2/15/11	1,180,845	$37,197,500	$31.50
6.	Banco Santander	forward + put	4/24/08	6/3/11	36,226,542	$150,969,365	$4.17
7.	Allianz	forward + put	4/25/08	6/3/11	1,734,362	$75,785,636	$43.70
8.	Eni	forward + put	4/28/08	6/3/11	21,027,783	$151,436,385	$7.20
9.	UniCredit	forward + put	4/28/08	6/3/11	166,346,152	$452,679,480	$2.72