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# a1 - created Describe the proﬁt from the strategy as a...

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ACTSC/STAT 446/846 – Assignment 1 – Due on Oct. 6 at 1:00pm Note: A drop-box on D2L will be created where you can hand in your assignment. Otherwise, hand in your assignment in class on the due date. 1- Problems from McDonald: [24 points] 2.7, 3.3, 3.11, 3.13, 4.5, 4.7, 5.7, 8.11 2. [3 points] A call with a strike price of \$60 costs \$6. A put with the same strike price and expiration date costs \$4. Descrice the proﬁt from a short straddle as a function of the stock price S T at expiration. For what ranges of stock prices would the (short) straddle lead to a loss? 3. [3 points] Three put options on a stock have the same expiration date and strike prices of \$55, \$60 and \$65. The market prices are \$3, \$5 and \$8, respectively. Explain how a butterﬂy spread can be
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Unformatted text preview: created. Describe the proﬁt from the strategy as a function of the stock price at expiration S T . For what range of stock prices S T would the butterﬂy spread lead to a loss? 4. (For 846 students ONLY): [10 points] (i) Problem 5.19 in McDonald; (ii) Find current quotes for at least three diﬀerent maturities for foreign exchange futures between the US dollar and another currency. Using the risk-free rates of the corresponding two countries, comment on the behavior of the futures price as maturity increases: is this behavior consistent with what Equation (5.18)—in McDonald—suggests ? 1...
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