hw5 - Derivative Securities, Fall 2007 Homework 5....

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Derivative Securities, Fall 2007 – Homework 5. Distributed 10/31/07, due 11/14/07. Comments added 12/2/07. (1) Some of the questions in this problem set ask you to price “an option” (e.g. “an option on the average value of the stock” in 2b) without clearly specifying explicitly the nature of the option. It should always be a call with strike 90. (2) Question 4 supplies redundant, inconsistent data. Suggested fix: ignore the information on a one-year swap (the remaining data are non-redundant). A solution sheet to HW4 will be posted 11/8; a solution sheet to HW5 will be posted 11/29 (in view of Thanksgiving); no late HW’s will be accepted once the solution sheet has been posted. Please note that Derivative Securities final exam will be Wednesday 12/19 at the usual class time and place. Also: this class does not meet Wed 11/21 (the Wednesday before Thanksgiving), since only Monday classes meet that day. This problem set calls for a considerable amount of arithmetic. Students with experience in program- ming will probably find it easiest to do some of the problems by writing short computer programs, rather than doing all the arithmetic by hand. 1. Consider a European-style call option written on a dividend paying stock with a maturity of
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hw5 - Derivative Securities, Fall 2007 Homework 5....

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