ADMS4503-Assignment2-Sample1

ADMS4503-Assignment2-Sample1 - AP/ADMS 4503 3.0 Derivative...

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Page 1 AP/ADMS 4503 3.0 Derivative Securities Fall 2009 Assignment #2 Instructions: (1) This assignment is to be done individually . You must sign and submit the standard cover page supplied as the last page of this assignment. (2) This assignment is due in the last class . (3) The work can be typed or handwritten . If it is handwritten and too difficult to read due to messiness and poor handwriting, it will receive zero credit . (4) You must show all details to receive full credit . (5) This assignment contains 5 questions and carries a total of 30 points . Question 1 (5 marks) Potash stock sells at $104 and is not expected to pay any dividend over the next year. The 3-month $100-strike call is selling at $9.93. The risk-free rate is 4% per annum continuously compounded. Options considered here are assumed to be of European style. (a) What is the theoretical price of the 3-month put? (2 marks) (b) The 3-month put is selling at $2.75 in the market. How would you undertake this arbitrage opportunity? Show all details.
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This note was uploaded on 12/17/2010 for the course ATKINSON 4503 taught by Professor Nabil during the Fall '10 term at York University.

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ADMS4503-Assignment2-Sample1 - AP/ADMS 4503 3.0 Derivative...

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