Let the S&P 500 index have: S 0 = $ 2,500 sigma = 35% delta

Let the S&P 500 index have:

• S₀ = $ 2,500
• \sigmaσ = 35%
• \deltaσ = 2%
• continuously compounded r= 4%

What is the price of a bond that after 2 years pays S₀ + max(0, S₂ − S₀)?

Answer rating: 100% (QA)

This type of security is called a callable bull spread or simply a call option Its value can ... View the full answer