You are given: (i) (ii) (iii) (iv) The S&R index spot price is $1,200. The continuous...
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You are given: (i) (ii) (iii) (iv) The S&R index spot price is $1,200. The continuous dividend yield on the index is 2%. The continuously compounded risk-free interest rate is 4%. o = 20%. (a) Using a binomial model with T = 0.25, and n = 1, and the risk neutral probability, p* associated with this model find the price of a $1,225-strike European call option on a futures contract on the index. (5 points) (b) Using a binomial model with T = 0.25, and n = 1, find the values of A, and B for a portfolio consisting of A units of the index and B amount of cash invested in bonds that replicates the payoff of the call option in Part (a). (6 points) You are given: (i) (ii) (iii) (iv) The S&R index spot price is $1,200. The continuous dividend yield on the index is 2%. The continuously compounded risk-free interest rate is 4%. o = 20%. (a) Using a binomial model with T = 0.25, and n = 1, and the risk neutral probability, p* associated with this model find the price of a $1,225-strike European call option on a futures contract on the index. (5 points) (b) Using a binomial model with T = 0.25, and n = 1, find the values of A, and B for a portfolio consisting of A units of the index and B amount of cash invested in bonds that replicates the payoff of the call option in Part (a). (6 points)
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a The price of the call option is 1249 P S Nd1 K erT Nd2 ... View the full answer
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