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Unformatted text preview: Introduction to derivatives, Fall 2011 BUSI 588, Homework 4 Homework 4 Due at the beginning of class, September 28th, 2011. 1. (*) You know the current value of a call option on the S&P500 with a strike price of $1350 and one-year maturity is $76. The S&P500 is currently trading for $1313.50, and it is expected to pay a 2% dividend yield over the next few years. The current term structure is flat at 5%. (a) What is the implied volatility of the call option? (b) Using the Black-Scholes model, what would you estimate the value of a put with a strike of $1300 on the S&P500 to be? 2. (*) Consider the following prices of a set of European options with one-year maturity. Strike 90 100 110 Call price 18.07 12.28 7.98 Put price 3.78 7.51 12.74 You know the current value of the underlying asset is $100, and that the term structure is flat at 5%. The above options are all priced as if the underlying asset had a 25% annual volatility, and all of the Black-Scholes assumptions held....
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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.
- Fall '10