Introduction to derivatives, Fall 2011 BUSI 588, Case 5 Ibrahimovic and risk-neutral pricing Please prepare for class discussion on Monday, 9/12. Ibrahimovic is seriously considering giving up his full-time job now that he has learnt about trading ﬁnancial securities. Taking long and short positions in calls and puts deﬁnitely beats kicking a ball around on weekends. Given his experience, he has decided to start trading on securities whose cash ﬂows depend on the outcome of sports competitions. He believes that the world over the next year will basically boil down to either (i) Barcelona winning the Champions League (again); or (ii) Barcelona not winning the Champions League. Call outcome (i) the u-state, and outcome (ii) the d-state. Given this year’s roaster and the state of the competition, everyone who knows anything about football agrees that the changes of Barcelona winning the Champions League are high, around 75%. After some hard analysis he concludes the values of FC Barcelona, a very liquid stock traded on the the London
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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.