# Question

Consider AAAPI, the Nikkei ADR in disguise. To answer this question, use the information in Table 23.4.

a. What is the volatility of Y , the price of AAAPI?

b. What is the covariance between Y and x, the dollar-yen exchange rate?

c. What is the correlation between Y and x, the dollar-yen exchange rate?

d. Using this information on the volatility of Y and the correlation between Y and x, construct a joint binomial tree for x and Y . Use this tree to price a Nikkei quanto forward.

a. What is the volatility of Y , the price of AAAPI?

b. What is the covariance between Y and x, the dollar-yen exchange rate?

c. What is the correlation between Y and x, the dollar-yen exchange rate?

d. Using this information on the volatility of Y and the correlation between Y and x, construct a joint binomial tree for x and Y . Use this tree to price a Nikkei quanto forward.

## Answer to relevant Questions

A barrier COD option is like a COD except that payment for the option occurs whenever a barrier is struck. Price a barrier COD put for the same values as in the previous problem, with a barrier of $95 and a strike of $90. ...In this problem you will price various options with payoffs based on the Eurostoxx index and the dollar/euro exchange rate. Assume thatQ= 2750 (the index), x = 1.25 ($/=C), s = 0.08 (the exchange rate volatility), σ = 0.2 ...For this problem, use the implied volatilities for the options expiring in January 2005, computed in the preceding problem. Compare the implied volatilities for calls and puts. Where is the difference largest? Why does this ...Using the CEV option pricing model, set β = 3 and generate option prices for strikes from 60 to 140, in increments of 5, for times to maturity of 0.25, 0.5, 1.0, and 2.0. Plot the resulting implied volatilities. Verify that the price of the 12% interest rate cap in Figure 25.6 is $3.909.Post your question

0