consider a hypothetical option that expires in one year and has a strike price 10% greater...
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consider a hypothetical option that expires in one year and has a strike price 10% greater then the current futures price. Consider also the case when the futures contract expires two days after the option expiration date and this interval can be perceived as negligible for the purpose of a quantitative analysis in this exercise. Assume that the annualised volatility of one-year crude oil futures price is 45%. You also need to source online the other inputs for the binomial model, that is: The current futures crude oil price of the underlying contract The one year risk free interest rate For the selected values of the above parameters, you need to report the source of the data, the date of collection and provide a screenshot of the online source. Prepare the binomial model for both options and conduct the relevant quantitative analysis in an Excel spreadsheet. Describe also the process for obtaining the value of the option at a particular node for each of the two options. For the call option, clearly explain the replication strategy, the assets involved in the strategy and which positions are taken in the relevant assets. You should demonstrate here your practical ability to apply the binomial model in futures option valuation. consider a hypothetical option that expires in one year and has a strike price 10% greater then the current futures price. Consider also the case when the futures contract expires two days after the option expiration date and this interval can be perceived as negligible for the purpose of a quantitative analysis in this exercise. Assume that the annualised volatility of one-year crude oil futures price is 45%. You also need to source online the other inputs for the binomial model, that is: The current futures crude oil price of the underlying contract The one year risk free interest rate For the selected values of the above parameters, you need to report the source of the data, the date of collection and provide a screenshot of the online source. Prepare the binomial model for both options and conduct the relevant quantitative analysis in an Excel spreadsheet. Describe also the process for obtaining the value of the option at a particular node for each of the two options. For the call option, clearly explain the replication strategy, the assets involved in the strategy and which positions are taken in the relevant assets. You should demonstrate here your practical ability to apply the binomial model in futures option valuation.
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Valuation of Crude Oil Futures Options Using the Binomial Model Introduction The binomial model is a widely used tool for valuing optionsIt is a relatively simple model that can be easily implemented ... View the full answer
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Posted Date:
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