Consider an increase in the volatility of the stock in the previous problem. Suppose that if the stock increases in price, it will increase to $ 130, and that if it falls, it will fall to $ 70. Show that the value of the call option is now higher than the value derived in the previous problem.
Answer to relevant Questions“The beta of a call option on General Motors is greater than the beta of a share of General Motors.” True or false? Suppose you are attempting to value a one- year maturity option on a stock with volatility ( i. e., annualized standard deviation) of σ 5 .40. What would be the appropriate values for u and d if your binomial model is set ...Suppose that the value of the S& P 500 stock index is 1350. a. If each futures contract costs $ 25 to trade with a discount broker, how much is the transaction cost per dollar of stock controlled by the futures contract? ...Desert Trading Company has issued $ 100 million worth of long- term bonds at a fixed rate of 7 percent. The firm then enters into an interest rate swap where it pays LIBOR and receives a fixed 6 percent on notional principal ...James Chan is reviewing the performance of the global equity managers of the Jarvis University endowment fund. Williamson Capital is currently the endowment fund’s only large- capitalization global equity manager. ...
Post your question