Question
Walmarts stock (WMT) is trading at $110 per share today. You believe that, in a year: - There is a 60% probability that the stock
Walmarts stock (WMT) is trading at $110 per share today. You believe that, in a year: - There is a 60% probability that the stock will be trading at $300 or more. - There is a 20% probability that the stock will be trading at $50 or less. - There is a 20% probability that the stock will be trading between $50 and $300.
You buy a call option today that:
- Gives you the right to purchase a share of WMT in one year, for $125.
- Costs $15 today.
a.Consider the WMT problem above. Assume that you decide to buy the option. What is your gain (+) or loss (-) on this trade if WMT is trading at $50 in a year?
b.Consider the WMT problem above. Assume that you decide to buy a share (instead of buying an option). What is your gain (+) or loss (-) on this trade if WMT is trading at $50 in a year?
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High Frequency Financial Econometrics
Authors: Yacine Aït Sahalia, Jean Jacod
1st Edition
0691161437, 978-0691161433
