ps5 - Riccardo Colacito Finance Division Problem Set 5...

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Unformatted text preview: Riccardo Colacito Finance Division Problem Set 5 Investments Due date: April 15 2010 in class 1. A European put option has an exercise price of $62 and four months to expiration. The underlying stock is selling for $64 currently and pays an annual dividend of $1.92. The standard deviation of the stock’s return is 0.21 and the risk free rate is 5%. (a) Use the Black and Scholes model to find the price of the put option. (b) What is the hedge ratio (Delta) of the put option? (c) Suppose that the price of the stock increases to $65. Use your answer to part b to calculate the new price of the put option. 2. If the initial margin on an orange juice futures contract is 15% and the settlement price is 99.4 cents per lb., with a contract size of 15,000 lbs., how much must you deposit in your account to meet the initial margin requirement? Suppose that you held a short position open for eight days, then reversed the trade. Complete the following table, which shows how your account would be marked to market each day as the price of...
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ps5 - Riccardo Colacito Finance Division Problem Set 5...

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