Consider a stock that is priced at $200 today and a call option on that stock that gives you the right but not the obligation to buy the stock at $225 in one year's time There are only two scenarios either an upside, on which the price rises to $300 or a downside that leads to a drop of $100 The risk free interest rate (r f ) is 8 What is the value of this option The value of a call option and a put option is influenced by the following variables Underlying asset value Strike Price Variance of Underlying asset Time to Expiration What effect would an increase in each of these variables have on the value of a call option and a put option A progressive government is considering selling the right to develop a new toll road to interested private consortiums The consortiums would have 1 year from the time of acquiring the right to develop the toll road until they must start development activities Their estimates indicate that (a) the total cost to develop the project is $100 million, (b) the expected value of the toll road's revenue is $75 million, and (c) the value of the toll road's revenue could be as high as $150 million but it could also be as low as $50 million Approximate the value of the option using the risk neutral approach in other words, what price might the government ask for granting the development right Assume r f 5 and t 1 yr Refer to the payoff table below Cuddy X Y Z House A 80 , 30 0 , 20 20 ,20 B 85 ,15 20 ,20 5 ,5 C 95 , 25 5 , 25 5 , 25 Does either player have a dominant strategy If yes, list it them Does either player have a strictly dominated strategy If yes, list it them Does either player have a weakly dominated strategy If yes, list it them List all pure strategy Nash equilibria of the above game If Cuddy's payoffs in the top left box (A,X) increased from 30 to 300, how would your answer to part c above change Explain Is the following statement true or false (explain your answer) In any strategic form game, if a player has a dominant strategy, then all of the other strategies of that player are dominated

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Posted on Jun 27, 2024

Consider a stock that is priced at $200 today and a call option on that stock that gives you the right but not the obligation to buy the stock at $225 in one year's time. There are only two scenarios: either an upside, on which the price rises to $300 or a downside that leads to a drop of $100. The risk-free interest rate (r_f) is 8%. What is the value of this option?

The value of a call option and a put option is influenced by the following variables:

What effect would an increase in each of these variables have on the value of a call option and a put option?

A "progressive" government is considering selling the right to develop a new toll road to interested private consortiums. The consortiums would have 1 year from the time of acquiring the right to develop the toll road until they must start development activities. Their estimates indicate that: (a) the total cost to develop the project is $100 million, (b) the expected value of the toll road's revenue is $75 million, and (c) the value of the toll road's revenue could be as high as $150 million but it could also be as low as $50 million.
1. Approximate the value of the option using the risk-neutral approach; in other words, what price might the government ask for granting the development right? Assume r_f= 5% and t = 1 yr.

If Cuddy's payoffs in the top-left box (A,X) increased from 30 to 300, how would your answer to part c above change? Explain.

Is the following statement true or false (explain your answer): In any strategic-form game, if a player has a dominant strategy, then all of the other strategies of that player are dominated.