FREE Trial

Go to the Connect site for this book, Chapter 23, and find there a spreadsheet containing monthly

Question:

Go to the Connect site for this book, Chapter 23, and find there a spreadsheet containing monthly values of the S& P 500 index. Suppose that in each month you had written an out- of- the- money put option on one unit of the index with an exercise price 5 percent lower than the current value of the index.
a. What would have been the average value of your gross monthly payouts on the puts over the 10- year period October 1977– September 1987? The standard deviation?
b. Now extend your sample by one month to include October 1987, and recalculate the average payout and standard deviation of the put- writing strategy. What do you conclude about tail risk in naked put writing?
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 69% (13 reviews)

a The spreadsheet indicates that the endofmonth value for the SP 500 in September 1977 was 9653 so t...View the full answer


answer-question-section
Answered By
tutor-profile-image
Asim farooq
I have done MS finance and expertise in the field of Accounting, finance, cost accounting, security analysis and portfolio management and management, MS office is at my fingertips, I want my client to take advantage of my practical knowledge. I have been mentoring my client on a freelancer website from last two years, Currently I am working in Telecom company as a financial analyst and before that working as an accountant with Pepsi for one year. I also join a nonprofit organization as a finance assistant to my job duties are making payment to client after tax calculation, I have started my professional career from teaching I was teaching to a master's level student for two years in the evening. My Expert Service Financial accounting, Financial management, Cost accounting, Human resource management, Business communication and report writing. Financial accounting : • Journal entries • Financial statements including balance sheet, Profit & Loss account, Cash flow statement • Adjustment entries • Ratio analysis • Accounting concepts • Single entry accounting • Double entry accounting • Bills of exchange • Bank reconciliation statements Cost accounting : • Budgeting • Job order costing • Process costing • Cost of goods sold Financial management : • Capital budgeting • Net Present Value (NPV) • Internal Rate of Return (IRR) • Payback period • Discounted cash flows • Financial analysis • Capital assets pricing model • Simple interest, Compound interest & annuities
4.40+ 65+ Reviews 86+ Question Solved
Related Book For  book-img-for-question
Investments

Investments

ISBN: 978-0071338875

8th Canadian Edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus, Stylianos Perrakis, Peter

See More Books
Question Posted:
See More Questions

Related Video

A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.

Students also viewed these Accounting questions

Research Successful Approaches 3rd Edition - ISBN: 0880914157 - Free Book