RECOMMENDED HOMEWORK PROBLEMS 1
INTRODUCTION TO FINANCIAL MATHEMATICS
MTH 457001 SPRING 2012
PROF. G
´
ABOR FRANCSICS
D310 WELLS HALL, 3537962,
[email protected]
1. PROBLEMS from the TEXTBOOK:
Chapter 1, p.17, Exercise 1

4;
Chapter 2, p.31, Exercise 1

3;
Chapter 3, p.55, Exercise 1

9.
2. TRADING STRATEGIES INVOLVING OPTIONS
.
1. A call with a strike price of $60 cost $6. A put with the same strike
price and expiration date costs $4. What is the graph of the proﬁt function of
the straddle created from these options? For what range of the stock prices
would the stradle lead to a loss?
2. Three put options on a stock have the same expiration date and strike
prices of $55, $60, and $65. The prices of the options are $3, $5, and $8,
respectively. Explain how a butterﬂy spread can be created. Construct the
proﬁt graph. For what range of the stock prices would the butterﬂy spread
lead to a loss?
3. How one can create a forward contract on a stock from options?
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 Spring '12
 Francsics
 Strike price

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