TABLE OF CONTENTS
1.
McDonald 9: "Parity and Other Option Relationships"
A.
B.
2.
Put-Call Parity
Comparing Options with Respect to Style, Maturity, and Strike
1
13
McDonald 10: "Binomial Option Pricing: I"
A.
B.
C.
Calculating Option Deltas
Calculation o

Instructor: Dr. Xiong
MATH 1121-Actuarial Math II
Last Name
Homework 1
First Name
Due Tuesday, 01/19/2016
Points:
10
1. For a non-dividend paying stock, you are given:
(i) Its current price is 32.
(ii) A European call option on the stock with one year to

Whale MMHLIMA WW %M%w
1. A 1.5eyea1 eurodenominated currency American put option to sell dollars is modeled with a 2-pe1'ioci binomial
tree. You are given:
(i) The spot: exchange mte is O 85 /$
(ii) This exchange rate is expected to go up by 11% Ol

1. The following information about an As1anhioometr1c average p11ce~gall call on a stock:
i) The strike price is 100 L/
ii)The cuiient stock price is 100.
iii)The time to expiration is 8 months.
iv)The stock price volatility is 25%.
v)The annual continuou

ACTS 4302
Instructor: Natalia A. Humphreys
SOLUTION TO HOMEWORK 9
Lesson 15: Monte Carlo Valuation.
Sufficient work must be shown to get credit for a correct answer. Partial credit may be given for
incorrect answers which have some positive work.
Problem

ACTS 4302
Instructor: Natalia A. Humphreys
SOLUTION TO HOMEWORK 7
Lesson 13: Asian, Barrier, and Compound options.
Sufficient work must be shown to get credit for a correct answer. Partial credit may be given for
incorrect answers which have some positive

ACTS 4302
Instructor: Natalia A. Humphreys
SOLUTION TO HOMEWORK 10
Lesson 16: Brownian Motion.
Lesson 17: Itos Lemma, Black-Scholes Equation.
Problem 1
Stock I and stock II open the trading day at the same price. Let X(t) denote the dollar amount
by which

ACTS 4302
Instructor: Natalia A. Humphreys
SOLUTION TO HOMEWORK 6
Lesson 11: The Black-Scholes formula: applications and volatility.
Lesson 12: Delta hedging.
Problem 1
For a 1-year European call option on a stock, you are given:
(i) The stocks price is 5

ACTS 4302
Instructor: Natalia A. Humphreys
SOLUTION TO HOMEWORK 2 2
Lesson 2: Comparing Options
Lesson 3: Binomial Trees - Stock, One Period
Problem 1
You are given:
(i)
(ii)
(iii)
(iv)
The price of a stock is 33.
The stock pays continuous dividends at th

ACTS 4302
Instructor: Natalia A. Humphreys
SOLUTION TO HOMEWORK 3
Lesson 4: Binomial Trees - General
Lesson 5: Other valuation methods of pricing options.
Problem 1
For a 1-year European put option on a stock modeled with a binomial tree:
(i) The tree has

ACTS 4302
Instructor: Natalia A. Humphreys
SOLUTION TO HOMEWORK 4 3
Lesson 6: Binomial trees: miscellaneous topics.
Lesson 7: Modeling stock prices with the lognormal distribution.
Problem 1
For a 1-year American put option on a stock with 6 months left t

ACTS 4302
Instructor: Natalia A. Humphreys
SOLUTION TO HOMEWORK 8
Lesson 14: Gap, Exchange, and Other Options.
Problem 1
For a stock you are given:
(i)
(ii)
(iii)
(iv)
(v)
The
The
The
The
The
stocks current price is 80.
stocks price follows the Black-Scho

Exam MFE/3F
Sample Questions and Solutions
April 6, 2010
1
1. Consider a European call option and a European put option on a nondividend-paying
stock. You are given:
(i)
The current price of the stock is 60.
(ii)
The call option currently sells for 0.15 m

Instructor: Dr. Xiong
MATH 1121-Actuarial Math II
Last Name
HW 2
Due Thursday, 01/28/2016
First Name
Points:
10
1. You are given:
(i) The price of a stock is 33.
(ii) The stock pays continuous dividends at the annual rate of 0.045.
(iii) The continuously