Numerical Problem Sets (100% in total for all problem sets; the credit allocation is specified next...
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Numerical Problem Sets (100% in total for all problem sets; the credit allocation is specified next to each problem set (e.g., 10% for problem set 1) as highlighted below. Detail must be provided.) 1. (10%; 2% for each subquestion) The following information is given for the stock of Akamai Technologies (AKAM). S-39.25, annual volatility-45%, effective annual interest rate =2.0% (i.e., exp(rc)=1.02), T=2 years, and no cash dividend is expected by option expiration (for analytical simplification). In a "zero-cost collar" contract often used by executives trying to lock in gains or hedge insider holding, Don sells European call options, if called upon, to sell shares at SA (higher). And he can use the proceeds to buy European put options, giving him the right to sell shares at $B (lower). This arrangement covers Don's 100,000 AKAM shares and is exercisable 2 years from now. (a) If Don sets the value of B at 25, calculate the value of put option (p in part (b)) for each share hedged. (b) Calculate f(X) = SN(d₂) – Xe¯¹¹ N(d₂) – p using the initial selected exercise price X of 40.84. (c) Calculate f'(X) = -e N(d₂) using the initial selected exercise price X of 40.84. (d) Based on Xn+1 = Xn ess for the implied exercise price? f(x₂) f (x₂) (e) Find the exercise price of A for the call option contained in the zero-cost collar contract. 9 what is our ne Numerical Problem Sets (100% in total for all problem sets; the credit allocation is specified next to each problem set (e.g., 10% for problem set 1) as highlighted below. Detail must be provided.) 1. (10%; 2% for each subquestion) The following information is given for the stock of Akamai Technologies (AKAM). S-39.25, annual volatility-45%, effective annual interest rate =2.0% (i.e., exp(rc)=1.02), T=2 years, and no cash dividend is expected by option expiration (for analytical simplification). In a "zero-cost collar" contract often used by executives trying to lock in gains or hedge insider holding, Don sells European call options, if called upon, to sell shares at SA (higher). And he can use the proceeds to buy European put options, giving him the right to sell shares at $B (lower). This arrangement covers Don's 100,000 AKAM shares and is exercisable 2 years from now. (a) If Don sets the value of B at 25, calculate the value of put option (p in part (b)) for each share hedged. (b) Calculate f(X) = SN(d₂) – Xe¯¹¹ N(d₂) – p using the initial selected exercise price X of 40.84. (c) Calculate f'(X) = -e N(d₂) using the initial selected exercise price X of 40.84. (d) Based on Xn+1 = Xn ess for the implied exercise price? f(x₂) f (x₂) (e) Find the exercise price of A for the call option contained in the zero-cost collar contract. 9 what is our ne
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1 10 2 for each subquestion a To calculate the value of the put option p for each share hedged when ... View the full answer
Related Book For
Practical Management Science
ISBN: 978-1305250901
5th edition
Authors: Wayne L. Winston, Christian Albright
Posted Date:
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