You should praise the exotic product Superbra using a one-period binomial model. The product Superbra pays out 10 times the value of that share which is most valuable of share A and share B in one year (T = 1), but only if this amount minus 1000 is positive. Cash flow in one year is thus given by the expression max [10 max(A,B) 1000;o) the A1 is the value of share A at time 1 and B1 is the value of share B at time 1. Let u and d denote the two possible conditions at time 1. The future share prices conditional of future state is calculated to A1 (u) = 110, A1 (d) = 100, B1 (u) = 120, B1 (d) = 80. For analysis purposes, the risk-free interest rate is r = 0. The observed time The market values of share A and share B are A0 = 102 and BO = 88. a) Calculate the time 0 value of the product Superbra. b) Show how you can replicate the cash flows of Superbra using action A. b) Show how you can replicate the cash flows of Superbra using action B. You should praise the exotic product Superbra using a one-period binomial model. The product Superbra pays out 10 times the value of that share which is most valuable of share A and share B in one year (T = 1), but only if this amount minus 1000 is positive. Cash flow in one year is thus given by the expression max [10 max(A,B) 1000;o) the A1 is the value of share A at time 1 and B1 is the value of share B at time 1. Let u and d denote the two possible conditions at time 1. The future share prices conditional of future state is calculated to A1 (u) = 110, A1 (d) = 100, B1 (u) = 120, B1 (d) = 80. For analysis purposes, the risk-free interest rate is r = 0. The observed time The market values of share A and share B are A0 = 102 and BO = 88. a) Calculate the time 0 value of the product Superbra. b) Show how you can replicate the cash flows of Superbra using action A. You should praise the exotic product Superbra using a one-period binomial model. The product Superbra pays out 10 times the value of that share which is most valuable of share A and share B in one year (T = 1), but only if this amount minus 1000 is positive. Cash flow in one year is thus given by the expression max [10 max(A,B) 1000;o) the A1 is the value of share A at time 1 and B1 is the value of share B at time 1. Let u and d denote the two possible conditions at time 1. The future share prices conditional of future state is calculated to A1 (u) = 110, A1 (d) = 100, B1 (u) = 120, B1 (d) = 80. For analysis purposes, the risk-free interest rate is r = 0. The observed time The market values of share A and share B are A0 = 102 and BO = 88. a) Calculate the time 0 value of the product Superbra. b) Show how you can replicate the cash flows of Superbra using action A. b) Show how you can replicate the cash flows of Superbra using action B. You should praise the exotic product Superbra using a one-period binomial model. The product Superbra pays out 10 times the value of that share which is most valuable of share A and share B in one year (T = 1), but only if this amount minus 1000 is positive. Cash flow in one year is thus given by the expression max [10 max(A,B) 1000;o) the A1 is the value of share A at time 1 and B1 is the value of share B at time 1. Let u and d denote the two possible conditions at time 1. The future share prices conditional of future state is calculated to A1 (u) = 110, A1 (d) = 100, B1 (u) = 120, B1 (d) = 80. For analysis purposes, the risk-free interest rate is r = 0. The observed time The market values of share A and share B are A0 = 102 and BO = 88. a) Calculate the time 0 value of the product Superbra. b) Show how you can replicate the cash flows of Superbra using action A
