a) An investor has to buy ABC in 4 month. He hedges his position against adverse evolution of ABC by using American 300 strike-option.

The spot price of ABC=300, its volatility=20%, dividend at rate 1.5% is paid till the maturity.

The risk-free CCIR=2%. Determine this option premium by using 2 period binomial method.

b)

An investor has short-short stock ABC and has to give them back in 4 month time. Against adverse evolution of ABC price this investor hedges his position with future contract based on ABC maturing in 4 month. Contract size=10. Initial margin = 15% and maintenance margin = 75%. simple IR=2% Time Future price 0 150 1 160 2 130 3 125 5 150 a) Determine the position, the initial margin and the maintenance margin. b) Determine the movements in the outstanding balance. An investor has short-short stock ABC and has to give them back in 4 month time. Against adverse evolution of ABC price this investor hedges his position with future contract based on ABC maturing in 4 month. Contract size=10. Initial margin = 15% and maintenance margin = 75%. simple IR=2% Time Future price 0 150 1 160 2 130 3 125 5 150 a) Determine the position, the initial margin and the maintenance margin. b) Determine the movements in the outstanding balance