{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Ch11HullFundamentals5thEd

Ch11HullFundamentals5thEd - Introduction to Binomial Trees...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Fundamentals of Futures and Options Markets , 5 th Edition, Copyright © John C. Hull 2004 11.1 Introduction to Binomial Trees Chapter 11
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Fundamentals of Futures and Options Markets, 5th Edition, Copyright © John C. Hull 2004 11.2 A Simple Binomial Model A stock price is currently $20 In three months it will be either $22 or $18 Stock Price = $22 Stock Price = $18 Stock price = $20
Image of page 2
Fundamentals of Futures and Options Markets, 5th Edition, Copyright © John C. Hull 2004 11.3 Stock Price = $22 Option Price = $1 Stock Price = $18 Option Price = $0 Stock price = $20 Option Price=? A Call Option ( Figure 11.1, page 244) A 3-month call option on the stock has a strike price of 21.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Fundamentals of Futures and Options Markets, 5th Edition, Copyright © John C. Hull 2004 11.4 Consider the Portfolio: long shares short 1 call option Portfolio is riskless when 22 – 1 = 18 or = 0.25 22 – 1 18 Setting Up a Riskless Portfolio
Image of page 4
Fundamentals of Futures and Options Markets, 5th Edition, Copyright © John C. Hull 2004 11.5 Valuing the Portfolio (Risk-Free Rate is 12%) The riskless portfolio is: long 0.25 shares short 1 call option The value of the portfolio in 3 months is 22 × 0.25 – 1 = 4.50 The value of the portfolio today is 4.5e – 0.12 × 0.25 = 4.3670
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Fundamentals of Futures and Options Markets, 5th Edition, Copyright © John C. Hull 2004 11.6 Valuing the Option The portfolio that is long 0.25 shares
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern