case02 - Introduction to derivatives Fall 2011 BUSI 588...

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Unformatted text preview: Introduction to derivatives, Fall 2011 BUSI 588, Case 2 Rinconete: payoff tables and payoff diagrams Please prepare for class discussion on Monday, 8/29. For the past few months you have been working for Golden Sacks, one of the dominant firms in the derivatives world. Today is your day with clients - you much prefer trading days, but without bringing in the clients there is no trading, so one has to deal with them. You know you will get to trade again soon, once you clear your desk of appointments. You stare at your computer screen and see that CSCOs stock is trading at S = $23 . 25 (ask price) and S = $23 . 23 (bid price). You also have the following information on stock option prices with CSCO as the underlying asset. Calls Puts Bid Ask Bid Ask Jan 20.00 4.10 4.15 0.83 0.85 Jan 22.50 2.37 2.41 1.58 1.60 Jan 25.00 1.14 1.17 2.84 2.87 For purposes of this case, assume the above options are European, i.e. they can only be exercised at maturity, namely in January. Ignore margin requirements, taxes and other frictions in your answers (but do account for the bid and ask prices given in the table when necessary).(but do account for the bid and ask prices given in the table when necessary)....
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This note was uploaded on 11/25/2011 for the course BUSI 588 taught by Professor Staff during the Fall '10 term at UNC.

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case02 - Introduction to derivatives Fall 2011 BUSI 588...

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