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As a financial analyst at Citibank Derivative Trading desk, you have collected data for a power option. A power call option pays off (max(ST-X, 0))2
As a financial analyst at Citibank Derivative Trading desk, you have collected data for a power option. A power call option pays off (max(ST-X, 0))2 at time T, where ST is 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 up move ? What is the value of the option ?
As a financial analyst at Citibank Derivative Trading desk, you have collected data for a power option. A power call option pays off (max(ST-X, 0))2 at time T, where ST is 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 up move ?
What is the value of the option ?
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Cornerstones of Managerial Accounting
Authors: Maryanne M. Mowen, Don Hanson, Dan L. Heitger, David McConomy, Jeffrey Pittman
2nd Canadian edition
978-0176721237, 978-0176530884
