Question: Suppose you enter into a put ratio spread where you
Suppose you enter into a put ratio spread where you buy a 45-strike put and sell two 40 strike puts. If you delta-hedge this position, what investment is required? What is your overnight profit if the stock tomorrow is $39? What if the stock is $40.50?
Answer to relevant QuestionsReproduce the analysis in Table 13.2, assuming that instead of selling a call you sell a 40-strike put. Examine the prices of up-and-out puts with strikes of $0.9 and $1.0 in Table 14.3. With barriers of $1 and $1.05, the 0.90-strike up-and-outs appear to have the same premium as the ordinary put. However, with a strike of 1.0 ...Let S = $40, σ = 0.30, r = 0.08, T = 1, and δ = 0. Also let Q = $60, σQ = 0.50, δQ = 0, and ρ = 0.5. In this problem we will compute prices of exchange calls with S as the price of the underlying asset and Q as the ...Using the information in the previous problem, compute the prices of a. An Asian arithmetic average strike call. b. An Asian geometric average strike call. Consider the equity-linked CD example in Section 15.3. a. What happens to the value of the CD as the interest rate, volatility, and dividend yield change? In particular, consider alternative volatilities of 20% and 40%, ...
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