Elizabeth May is an options trader working at CM Bank, a bank that is heavily invested...

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Elizabeth May is an options trader working at CM Bank, a bank that is heavily invested in capital market operations. Elizabeth is always trying to figure out call and put option prices on her own using inputs defined through the BSM model. She is keen on purchasing MDLZ calls and put. She gets the inputs for MDLZ from the market data given in Exhibit 1. Exhibit 1 Spot N(dl) Call/ Put Strike Risk Free rate Time N(d2) 58 0.9 52 5% 3 months 0.85 She is interested in Black Model theory too and gets information on the Futures Price of MDLZ in a separate email afterwards. The 3-month Futures price is trading at $62. Elizabeth was asked to attend a Greeks Volatility Seminar. She met traders and trainees from other firms there. She engaged in a conversation with three trainees who were discussing risk free rates, option prices, and volatility. One trainee, Brian, said, "I monitor risk free rates carefully since they have a direct relationship with call price." Another trainee, Yujie, said, "I review the spot price since it has a direct relationship with call price." The third trainee, Casey, said, "For me, Vega is important to review since it has a negative relationship with call price." During the same seminar, Elizabeth was monitoring the movement of VISA stock. It was trading at $200. She had gone long on the put option and its current Delta (put) was at - 0.8. After an hour, the price of VISA had decreased to $195. While she was also tracking another option (PG), her phone's battery died. PG stock was trading at $135. She had gone long on a call and put option with a strike of $134 earlier. A news feed came up on a business news channel on television that the stock price of PG had decreased to $120. (a) Given that Elizabeth likes to calculate call and put premium prices herself, what would her call and put option prices be for MDLZ based on data from Exhibit 1? b) What is the call price for MDLZ according to the Black Model? c) Based on the conversation she had with the trainees, which one of them spoke incorrectly? (1 mark) i. ii. iii. Brian Yujie Casey (d) Based on delta and price movements of VISA stock, by how much would the put price had moved in that instance? (1 mark) (e) Given the price movements of PG, what were the movements in deltas of call and put options? (2 marks) A. Delta of call decreased and delta of put increased B. Delta of call increased and delta of put decreased C. Delta of call decreased and delta of put decreased Elizabeth May is an options trader working at CM Bank, a bank that is heavily invested in capital market operations. Elizabeth is always trying to figure out call and put option prices on her own using inputs defined through the BSM model. She is keen on purchasing MDLZ calls and put. She gets the inputs for MDLZ from the market data given in Exhibit 1. Exhibit 1 Spot N(dl) Call/ Put Strike Risk Free rate Time N(d2) 58 0.9 52 5% 3 months 0.85 She is interested in Black Model theory too and gets information on the Futures Price of MDLZ in a separate email afterwards. The 3-month Futures price is trading at $62. Elizabeth was asked to attend a Greeks Volatility Seminar. She met traders and trainees from other firms there. She engaged in a conversation with three trainees who were discussing risk free rates, option prices, and volatility. One trainee, Brian, said, "I monitor risk free rates carefully since they have a direct relationship with call price." Another trainee, Yujie, said, "I review the spot price since it has a direct relationship with call price." The third trainee, Casey, said, "For me, Vega is important to review since it has a negative relationship with call price." During the same seminar, Elizabeth was monitoring the movement of VISA stock. It was trading at $200. She had gone long on the put option and its current Delta (put) was at - 0.8. After an hour, the price of VISA had decreased to $195. While she was also tracking another option (PG), her phone's battery died. PG stock was trading at $135. She had gone long on a call and put option with a strike of $134 earlier. A news feed came up on a business news channel on television that the stock price of PG had decreased to $120. (a) Given that Elizabeth likes to calculate call and put premium prices herself, what would her call and put option prices be for MDLZ based on data from Exhibit 1? b) What is the call price for MDLZ according to the Black Model? c) Based on the conversation she had with the trainees, which one of them spoke incorrectly? (1 mark) i. ii. iii. Brian Yujie Casey (d) Based on delta and price movements of VISA stock, by how much would the put price had moved in that instance? (1 mark) (e) Given the price movements of PG, what were the movements in deltas of call and put options? (2 marks) A. Delta of call decreased and delta of put increased B. Delta of call increased and delta of put decreased C. Delta of call decreased and delta of put decreased

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Answers to Elizabeths options pricing and risk management questions a MDLZ call and put prices using BSM model Unfortunately the information provided ... View the full answer