UNIVERSITY OF ILLINOIS AT URBANACHAMPAIGN
Actuarial Science Program
DEPARTMENT OF MATHEMATICS
Math 476 / 567
Prof. Rick Gorvett
Actuarial Risk Theory
Fall, 2010
Homework Assignment # 2 (max. points = 10)
Due at the beginning of class on Thursday, September 9, 2010
You are encouraged to work on these problems in groups of no more than 3 or 4.
However, each
student must hand in her/his own answer sheet. Please show your work – enough to show that
you understand how to do the problem – and circle your final answer.
Full credit can only be
given if the answer and approach are appropriate. Please provide answers to two decimal places.
Note:
When calculating a percentage, please provide answers either as a proportion to
four decimal places (e.g., 0.xxxx), or as a percentage to two decimal places (e.g., xx.xx%).
(1)
Consider a European 60strike call option on one share of ABC stock.
You believe that,
on the expiration date of the option, the stock price is equally likely to be anywhere
between $50 and $75 per share.
What is the expected payoff of this call option?
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