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
oneyear 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 BlackScholes 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 oneyear 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 BlackScholes assumptions held.
Suppose you hold a long position in thirty call options with a strike of $100 and ten put
options with a strike of $90.
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 Fall '10
 Staff
 Derivatives, Options, KenanFlagler Business School, Diego Garc´ KenanFlagler, Garc´ KenanFlagler Business

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