Question
As a financial analyst at Citibank Derivative Trading desk, you have collected data for a power option.A powercalloption pays off (max(S T -X, 0)) 2
As a financial analyst at Citibank Derivative Trading desk, you have collected data for a power option.A powercalloption pays off (max(ST-X, 0))2at time T, where STis the stock price at time T and X is the exercise price. A stock price is currently $60. It is known that at the end of one year it will be either $66 or $54. The risk-free rate of interest with continuous compounding is 5% per annum. Calculate the value of a one year power call option with an exercise price of $60.
What is the delta of the option?
What is the risk neutral probability of upmove?
What is the value of the option?
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Financial and Managerial Accounting the basis for business decisions
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
18th edition
125969240X, 978-1259692406
