Assignment_4Answersc

Assignment_4Answersc - Assignment 4 Answers Johnson...

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0.80% – 0.30% 9 Assignment 4 Answers Johnson Graduate School of Management Equity Derivatives & Related Products Due on October 19, 2010 Professor Mark Zurack Question 1 Below is market information on General Electric and the S&P 500: Price 3 Month  50D Vol 12 Month  50D Vol 25 Delta Put/Call Spread for All  Maturities Dividend  Yield S&P 500 1,150 22 25 8.4 2.0% GE 16.4 29 34 9.0 2.9% Assume that 3 month LIBOR is at 0.3%, 12 month LIBOR is at 0.8%, GE pays a rebate of LIBOR  minus 15 bps and dealers typically finance GE stock at LIBOR plus 10 bps, and the expected  execution shortfall for trading GE depends on the number of shares traded according to the following  schedule: Under 100,000 shares – 10 bps 100,000 – 500,000 shares – 20 bps Please price the following: a) 6 month calls on the S&P 500 struck at 1,200 Answer 1) Index at 1,150, determine 6 month LIBOR using interpolation  6 Month LIBOR = 0.30% +                        x 3 = 0.47%
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