Ch1-2 solutions - Text Book: Options, Futures and Other...

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Unformatted text preview: Text Book: Options, Futures and Other Derivatives, 7 th Edition Chapter 1 : Problem 23: Suppose the yen exchange rate (yen per dollar) at maturity of the ICON is S T . The payoff from ICON: 1000, if S T >169 1000-1000(169/S T-1) , if 84.5 S T 169 0 , if S T <84.5 The payoff from ICON is the payoff from a) A regular bond b) A short position in call options to buy 169,000 yen with an excise price of 1/169 c) A long position in call option to buy 169,000 yen with an excise price of 1/84.5 Terminal value (TV) TV of regular bond TV of short calls TV of long calls TV of whole position S T >169 1,000 1,000 S T between 84.5 and 169 1,000-169,000*(1/S T- 1/169)-169,000/S T +2,000 S T <84.5 1,000-169,000* (1/S T- 1/169) 169000 *(1/S T- 1/84.5) Problem 26: F =$800; S =$600; t=1; r=10% F >S e rt , that is, $800 > $663.10 Step 1: We can borrow$600 at 10% per annum and use it to purchase one unit of the...
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Ch1-2 solutions - Text Book: Options, Futures and Other...

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