This preview shows pages 1–6. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: year. What is the the correct price of a one year European put option with the same strike price? (b) (13 points) What is a general formula for a lower bound on the price of a put with strike price K, maturity T, and riskfree rate r? Give an arbitrage argument to prove this lower bound. (c) ( 6 points) What is the correct lower bound for the price of the put in the case where the stock gives dividends of total present value D? . 3 4. (10 points) The riskfree interest rate is 10% with quarterly compounding. What is the equivalent rate for continuous compounding. 4 5. (15 points)The riskfree rates (with continuous compounding) for deposits are 5% for 6 months, 6% for one year, and 7% for 18 months. What is the theoretical price today of a bond with 100 dollar par value that gives coupons semiannually at annual rate of $8 ? Assume the bond matures in 18 months. 5 6. (10 points) The one year zero rate is 5%. The two year zero rate is 6%. What is the one year forward rate? 6...
View
Full
Document
This note was uploaded on 01/30/2012 for the course MATH 174 taught by Professor Donblasius during the Spring '11 term at UCLA.
 Spring '11
 DonBlasius
 Math

Click to edit the document details