5. In this problem, you will need the following table of N(d) to provide inputs for...
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5. In this problem, you will need the following table of N(d) to provide inputs for a Black-Scholes analysis. For values of d₁ and d2 that do not correspond exactly to values in the table, simply round off d₁ or d2 to the nearest entry on the table. Also, use the approximation that when X and S are close, In(S/X) equals the percentage difference between S and X, expressed as a decimal. For example, In(97/100) = ln(.97) = -.03. d 0.0 0 0.0 5 0.1 0 0.1 5 0.2 0 0.2 5 0.3 0 0.3 5 0.4 0 0.4 5 0.5 0 N(d) 0.50 0 0.52 0 0.54 0 0.56 0 0.57 9 0.59 9 0.61 8 0.63 7 0.65 5 0.67 4 0.69 1 d 0.5 5 0.6 0 0.6 5 0.7 0 0.7 5 0.8 0 0.8 5 0.9 0 0.9 5 N(d) 0.70 9 0.72 6 0.74 2 0.75 0.81 6 0.82 9 1.0 0.84 0 1.0 5 8 0.77 3 0.78 8 0.80 2 1 0.85 3 Suppose that your firm has issued a three-year European call option with an exercise price of $100 on a mutual fund. [Assume for simplicity that it has issued the call on one share of the fund.] Your assignment is to delta hedge the call option. The fund currently sells for $100 per share. It has a standard deviation of 20% per year and T-bills pay 5% per year. The portfolio pays no dividends. a. [10 points] What is the value of the call option? 5. In this problem, you will need the following table of N(d) to provide inputs for a Black-Scholes analysis. For values of d₁ and d2 that do not correspond exactly to values in the table, simply round off d₁ or d2 to the nearest entry on the table. Also, use the approximation that when X and S are close, In(S/X) equals the percentage difference between S and X, expressed as a decimal. For example, In(97/100) = ln(.97) = -.03. d 0.0 0 0.0 5 0.1 0 0.1 5 0.2 0 0.2 5 0.3 0 0.3 5 0.4 0 0.4 5 0.5 0 N(d) 0.50 0 0.52 0 0.54 0 0.56 0 0.57 9 0.59 9 0.61 8 0.63 7 0.65 5 0.67 4 0.69 1 d 0.5 5 0.6 0 0.6 5 0.7 0 0.7 5 0.8 0 0.8 5 0.9 0 0.9 5 N(d) 0.70 9 0.72 6 0.74 2 0.75 0.81 6 0.82 9 1.0 0.84 0 1.0 5 8 0.77 3 0.78 8 0.80 2 1 0.85 3 Suppose that your firm has issued a three-year European call option with an exercise price of $100 on a mutual fund. [Assume for simplicity that it has issued the call on one share of the fund.] Your assignment is to delta hedge the call option. The fund currently sells for $100 per share. It has a standard deviation of 20% per year and T-bills pay 5% per year. The portfolio pays no dividends. a. [10 points] What is the value of the call option?
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Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
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