Call option and put option questions


Now, use the Numa calculator to compute the stocks implied volatility. Clarify exactly what this option like agreement is, and who is long the option and who is short the option there are two possibilities in each case: Also, make up a price for the option justify why you choose the price you choose.

Clarify exactly what this option like agreement is, and who is long the option and who is short the option there are two possibilities in each case: A client says to you:. Call an out of the money put, a put option whose strike is less than the current stock price. Can you give me an idea of how accurate it is?

You will be graded on how specific and how convincing you are. What is the strike price? Why would the issuer of a bond place a cap on the coupon rate?

Describe a cap on a floating rate loan. Intuitively justify your answer. Now, use the Numa calculator to compute the stocks implied volatility. You may use the Numa free options pricing calculator, or you may program in the Black-Scholes formula and use that to create an analysis.

Can you give me an idea of how accurate it is? This implies that implied vol will have a bid-ask spread as well. Derive an approximate formula for the value of an at-the-money forward put option like the approximate formula for an at-the-money forward call option.

Derive an approximate formula for the value of an at-the-money forward put option like the approximate formula for an at-the-money forward call option. Provide this client with an analysis of this question. Give at least two reasons why the relationship of put-call parity will hold approximately.

Using the approximate formula, answer the following questions: Now, show that this is equivalent to a different option put or call with a different currency as underlier and a possibly different strike price. Describe a cap on a floating rate loan. Clarify call option and put option questions what this option like agreement is, and who is long the option and who is short the option there are two possibilities in each case: How do you think the cap affects the value of the bond?

Reference to 1-Month LIBOR means the interest rate that major international banks are offering to pay other such banks on a CD that matures in one month. In other words, justify the statement that buying a call option, shorting a put option of the same strike and maturity, with the same underlying is the same, economically, as owning the security and financing it partially with an amount equal to the strike price of the options. How do you think a maturity call option and put option questions into play?

Now, use the Numa calculator to compute the stocks implied volatility. Implied volatility is the volatility that if put into the Black-Scholes formula would yield the observed market price a listed option. Explain the answers you get. How do you think a maturity comes into play?