A2 - STAT/ACTSC 446/846 Assignment #2 (due February 6th,...

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Unformatted text preview: STAT/ACTSC 446/846 Assignment #2 (due February 6th, 2009, 2pm) Note: Recall that, when handing in your assignment, you are requested to use a cover page showing only your UWID number and your section (846 students: also write 846 on the cover page) and to write your full name on the next page. Assignments must be handed in during the TAs office hours in MC 6095 before or on the due date (see the Calen- dar on UW-ACE for details). Problem 1: [12marks] Strategies Assume S = 9 and the interest rate is equal to 0. (a) Draw a graph of the payoffs of the following strategies: a bull spread: buy call with a strike equal to 8 and sell a call with strike equal to 10. a bear spread: sell call with strike equal to 8 and buy a call with strike 10. a collar: buy put with strike 8 and sell call with strike 10. a straddle: buy a call and a put with strike 9. a strangle: buy a call with strike 10 and buy a put with strike 8. a butterfly spread: sell the above straddle and buy the above strangle. Assume the dynamics of the stock is the following dS t = 2 dt + dW t where W t is a standard Brownian motion....
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This note was uploaded on 01/16/2011 for the course ACTSC actsc 446 taught by Professor Idk.. during the Spring '09 term at Waterloo.

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A2 - STAT/ACTSC 446/846 Assignment #2 (due February 6th,...

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