Tutorial13_Derivatives+with+solution

Tutorial13_Derivatives+with+solution - Tutorial 13: Option...

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Unformatted text preview: Tutorial 13: Option Valuation and Futures (Introduction) 7. Provide a detailed discussion on the six factors that influence the premiums of European call and put options in the Black-Scholes Model. 8. Use the Black-Scholes formula to find the value of a call option of the following stock: Time to maturity = 6 months Standard deviation = 50% per year Exercise price = 50 Stock price = 50 Interest rate = 10% p.a. 9. Recalculate the value of the option in question 8, successively substituting one of the changes below while keeping the other parameters as in question 4: a. Time to maturity = 3 months b. Standard deviation = 25% per year c. Exercise price = 55 d. Stock price = 55 e. Interest rate = 15% p.a. Consider each scenario independently. Confirm that the option value changes in accordance with theoretical expectations. 10. Today is 1 September 2008. Use 2-step approach based on the binomial option pricing model to determine the fair values of the call option (X = R420) and Put option (X = R380) on a SASOL shares. The share price of SASOL is currently R400, and is expected to move up by 15%, or down by 10% every six months. The current South African S/T T-bill rate is 8% p.a. 11 On 1 August 2009, A buys 2 futures contracts and B sells 2 futures contracts; On 2 August 2009, C buys 3 futures contracts and D sells 3 futures contracts; On 3 August 2009, A sells 2 futures contracts and D buys 2 futures contracts; On 4 August 2009, E buys 4 futures contracts, C sells 1 futures contract, and A sells 3 futures contracts; On 5 August 2009, A buys 3 futures contracts, B buys 2 futures contract, and C sells 5 futures contracts. a) Compute the trading volume and open interest based on the above transactions from 1 August 2009 to 5 August 2009....
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This note was uploaded on 06/01/2011 for the course FIN 3026W taught by Professor Drtoerien during the Summer '09 term at University of Cape Town.

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Tutorial13_Derivatives+with+solution - Tutorial 13: Option...

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