Derivatives Question and Answers - 7021 Words

Payoff Diagrams (16p) Draw the gross payoff (not net-payoff/profit) diagram as a function of MLM stock for the following portfolios consisting of: (Strike values are given in parentheses) (a) one long position in the stock and two short positions in the same put option (K). (b) two long positions in the stock, two short call options (2K), and one long position ina put (K). (c) two short positions in the stock, two long call options (2K), and one short put option(3K). (d) one long position in the stock, two short call options (2K), two short call options (3K),and one short put option (2K). For this question, take into account the net profit only for the stock. You can assume that the stock is purchased at a price of K.†¦show more content†¦Black-Scholes-Merton Model (32p) Go to the website of the Montreal Exchange (http://www.m-x.ca/accueil en.php) and find the historical prices of traded options on Suncor Energy (symbol: SU) on February 10, 2016. Consider the March 2016 contract, i.e., the one-month option. The three month LIBOR rate is 0.62% (continuously compounded), a good proxy for the risk-free rate. (a) What are the standardized contract terms of this equity option contract (contract size,expiration day, contract type, American or European, clearing corporation)? (b) What is the range of available strike prices offered by TMX on February 10, 2016?Which option had the highest open interest and which option had the greatest trading volume on that day? Consider call and put options separately. (c) Calculate the percentage bid-ask spreads for the call options with strike prices equalto $22, $29, and $42. Using the percentage bid-ask spread as a measure of illiquidity, which option is the most illiquid among the in-the-money call, the at-the-money c all, and the out-of-money call? How does the liquidity of the options compare to the liquidity of the underlying stock? Hint: The percentage bid-ask spread is defined as BS = 2|PriceBid−PriceAsk|/(PriceBid+PriceAsk). TMX’s website also provides price information and historical volatility for the underlying. (d) Use the call and put option prices with a strike price of $30 to derive the implieddividend yield of the underlying stock?Show MoreRelatedDerivatives Markets 3rd Edition Solutions Pdf Essay613 Words   |  3 PagesDERIVATIVES MARKETS 3RD EDITION SOLUTIONS PDF Derivatives Markets 3rd Edition Solutions Pdf can be extremely handy things, and derivatives markets 3rd edition solutions pdf play an important role in your products. The problem is that once you have gotten your nifty new product, the derivatives markets 3rd edition solutions pdf gets a brief glance, maybe a once over, but it often tends to get discarded or lost with the original packaging. Equally you may have made a second hand purchase derivativesRead MoreMicrosoft Corporation: Assignment Essay1100 Words   |  5 Pagesof the questions in this assignment can be answered by referring to the financial statements (Item 1) and Notes to Financial Statements in these Form 10-Qs. Name(s): Questions: Microsoft Corporation 1. List three types of non-derivative investments held by Microsoft for which the corresponding fair value measurements fall within Level 1 of the fair value hierarchy. Why do the fair value measurements for these investments fall within Level 1 of the fair value hierarchy? 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