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Anyone can assist me in solving this practice question? I am kind of struggling with it. PRACTICE QUESTION Consider a 6-month European bear put spread
Anyone can assist me in solving this practice question? I am kind of struggling with it.
PRACTICE QUESTION Consider a 6-month European bear put spread on TD stock with strike prices of $50 and $60. TD spot price is $65 and its volatility is 25%. The stock is not expected to pay any dividend. The risk-free rate is 2%. Note that for this question, you can use Derivagem but you need to show all your calculations and all formulas used. (a) Use Black-Scholes-Merton (BSM) model to price this strategy. (2 marks) (b) What is the delta of this strategy? How would you interpret it? (2 marks) (c) Without using BSM model, what is the 6-month 60-strike straddle price and its delta? (2 marks)Step by Step Solution
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