fm3_problems21 - UN-14PCHOOSING A SYNTHETIC PUT EXERCISE...

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Unformatted text preview: UN-14PCHOOSING A SYNTHETIC PUT EXERCISE PRICEz0.9500 Insurance levelS100 Current stock priceX106.473 Exercise pricer6.00% Risk-free rate of interestT1 Time to maturity of option (in years)Sigma30% Stock volatility0.1409 <--(LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))-0.15910.55600.4368Equation0.0000Calculating the portfolio insurance proportionsOmega43.59%#MACRO?56.41%#MACRO?Extra calculationsStock100.0000#MACRO?Put price12.0763#MACRO?Stock + put112.0763#MACRO?If you have $1000, you can buy:Number of shares+puts8.9225#MACRO?950.0007#MACRO?d1d2<--d1 - sigma*SQRT(T)N(d1)<---Uses formula NormSDist(d1)N(d2)<---Uses formula NormSDist(d2)<--1/z - S/X*N(d1)-exp(-r*T)*(1-N(d2))Note: Excel's Solver was used to find X so that the insurance level would be 95%.Notethat omega = S/(S+P)In the worst case situation, you exercise allthe puts, gettingABC12345678910111213141516171819202122232425262728293031323334Exercise 2Page 2PORTFOLIO INSURANCE SX106.47Sigma40%r6%Initial1000Portfolio vabeginning ofWeekTimeStock pricePut priceOmegaStocksBonds0.0000100.000.193216.00990.4970497.03502.9710.0192101.980.237915.10190.5174522.78487.6520.0385102.100.236414.96340.5176523.59488.0230.0577100.850.200115.39100.5026505.50500.2740.0769105.550.313613.42430.5528569.31460.5850.096297.520.101716.68300.4615455.58531.5160.115499.200.141215.83280.4796477.48518.1070.134696.400.058517.03310.4448437.06545.6380.1538103.410.242613.85530.5254533.36481.7390.1731107.910.355212.02440.5747597.09441.79100.1923102.470.208014.03170.5122516.98492.29110.2115111.660.444710.50040.6140648.50407.71120.2308114.390.51149.51440.6421688.63383.90130.2500117.410.58548.50710.6721733.42357.74140.2692116.140.55358.73840.6603715.59368.08150.2885103.610.214512.99410.5198523.33483.55160.3077119.960.64957.42900.6987761.59328.40170.3269123.230.73266.49120.7297810.80300.38180.3462117.940.59927.69030.6811733.31343.38190.3654117.430.58617.68990.6768726.79347.10200.3846115.970.54687.96110.6623705.49359.77210.4038119.280.63806.89560.6979757.82328.01220.4231122.540.72845.93980.7314809.55297.36230.4423123.550.75935.55810.7427827.36286.56240.4615131.400.97363.89060.8109946.18220.69250.4808137.451.13822.87340.85461034.67176.00260.5000135.261.09373.02960.84401008.13186.27270.5192135.681.11682.83640.85021018.30179.44280.5385146.431.41031.59800.91081164.59114.00290.5577154.511.63260.98140.94271266.1376.90300.5769151.741.58931.04310.93761237.9582.44310.5962148.561.53291.13700.93021204.2390.33320.6154146.621.50701.16010.92681185.2993.67330.6346155.091.76710.63660.95751290.1657.32340.6538160.571.95170.39680.97211354.3138.85350.6731152.311.76570.59040.95761267.4056.17360.6923163.872.13760.22840.98241394.7725.05370.7115159.942.08210.25130.97981358.3728.01380.7308159.052.11540.21960.98141353.2925.58390.7500166.602.41360.09260.99161430.9312.19400.7692153.702.07850.21640.97981305.3626.93410.7885156.262.24640.13060.98681336.3017.83420.8077161.722.53640.05350.99411392.538.31The cells in column P have the function Nto simulate the standard normal deviates...
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This note was uploaded on 01/23/2011 for the course FGB 780 taught by Professor Edwardchang during the Spring '09 term at Missouri State University-Springfield.

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fm3_problems21 - UN-14PCHOOSING A SYNTHETIC PUT EXERCISE...

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