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Please answer all parts. Thank you so much!! 3. Buffelhead's stock price is $220 and could half or double in each six-month period (equiva- lent
Please answer all parts. Thank you so much!!
3. Buffelhead's stock price is $220 and could half or double in each six-month period (equiva- lent to a standard deviation of 98%). A one-year call option on Bufflelhead has an exercise price of $165. The interest rate is 21% a year (assume that this is an effective annual rate, compounded every six months). (a) What is the value of Buffelhead call? (b) Compute the option's delta for the second six months if (i) the stock price rises to $440 and (ii) the stock price falls to $110. (c) How does to call option delta vary with the level of the stock price? Explain intu- itively why. 4. Suppose now that you own an American put option on Buffelhead's stock with an exercise price of $220. (a) Would you ever want to exercise the put early? (b) Calculate the value of put. (c) Compare the value with that of an equivalent European option. 3. Buffelhead's stock price is $220 and could half or double in each six-month period (equiva- lent to a standard deviation of 98%). A one-year call option on Bufflelhead has an exercise price of $165. The interest rate is 21% a year (assume that this is an effective annual rate, compounded every six months). (a) What is the value of Buffelhead call? (b) Compute the option's delta for the second six months if (i) the stock price rises to $440 and (ii) the stock price falls to $110. (c) How does to call option delta vary with the level of the stock price? Explain intu- itively why. 4. Suppose now that you own an American put option on Buffelhead's stock with an exercise price of $220. (a) Would you ever want to exercise the put early? (b) Calculate the value of put. (c) Compare the value with that of an equivalent European optionStep by Step Solution
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