price the European and American binary calls
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Assume that the strike price is $100. The time to maturity T is 2 months. Risk free rate is 0.1, U=1.21, D=0.82 price the European and American binary calls if the spot price differs from the strike price by 0.01 using the 2 step binomial tree. Use monthly compounding.
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- Consider a two-period binomial tree model with u = 1.1 and d = 0.90. Suppose the current price of the stock is $50 and the nominal interest rate is 2%. What is the value of an American put with a strike price of $60 that will expire in 3 months? Use at least four decimal places for those questions that require a numerical answer.The below call option is European. What is the minimum arbitrage profit at time T=1Y arising from the following prices? So = $19.63 T=1Y K = $18 C = $2.77 r = 6% (cont. comp. annual rate) (required precision 0.01 +/- 0.01)Consider a one-period binomial model in which the underlying is at 65 Euros, and can go up 30% or down 22% each period. The risk-free rate is 8%. European Put Option with Execution Price of 70 Euros. Assume that the put is selling for 9 Euros. Demonstrate how to execute an arbitrage transaction and calculate the rate of return. Use 10000 puts.
- Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 2.00% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered , i.e., if averaging is required, use the geometric average. (Round your final answer to 2 decimal places.)Consider a one-step binomial model over a 3-month period. The current asset price is $100. In 3 months, the asset price will increase by 8% with probability 70% and decrease by 5% with probability 30%. The risk free interest rate is 1% per year with continuous compounding. What's the price of a 3-month at-the-money European call option? Keep 2 digits after the decimal point. Do not include $ sign in your answer.Consider a two-period binomial tree model with u = 1.05 and d = 0.90. Suppose the current price of the stock is $100 and the nominal interest rate is 2%. What is the value of an American put with a strike price of $95 that will expire in 146 days?
- Suppose that the 90-day forward rate is $1.17/€, the current spot rate is S1.20/€, and you expect the future spot rate in 90 days to be S1.21/€. If the standard deviation of the 90-day rate of appreciation of the euro relative to the dollar is 2% (in terms of the current spot rate), what range covers 95.46% of your possible profits and losses (assume a normal distribution on the future spot rate)? O a. [-S0.032, SO.112] O b. [-S0.008, S0.0OSS] O . [S0.023, S0.075] O d. [S0.016, S0.064]Consider a one-period binomial model in which the underlying is at 65 Euros, and can go up 30% or down 22% each period. The risk-free rate is 8%. Determine the price of a European put option with exercise price of 70. Assume that the put is selling for 9 Euros. Demonstrate how to execute an arbitrage transaction and calculate the rate of return. Use 10000 puts.Let S = $85, r = 4% (continuously compounded), d = 3%, s = 35%, T = 1.5. In this situation, the appropriate values of u and d are 1.36426 and 0.74408, respectively. Using a 2-step binomial tree, calculate the value of a $80-strike European call option.
- given S0=€50, at the end of second months, the asset can be €52 or €48. With risk free interest rate of 12% continously and ST is the asset price in the end of second month. Calculate the pricing of a derivative that give ST^2 payoff at the end of second months using one step binomial process.You took a long position on EUR when the prevailing market rate was EUR/USD: 1.3223-1.3227. After six months, you want to square your net FX position to take profits. Which of the following scenarios will yield you maximum profits? Scenario A: at EUR/USD 1.3245 – 1.3253 Scenario B: at EUR/USD 1.3230 – 1.3255 Scenario C: at EUR/USD 1.3231 – 1.3235 Scenario D: at EUR/USD 1.3247 – 1.3252 You took a short position on GBP when the prevailing market rate was GBP/USD: 1.3223-1.3227. After six months, you want to square your net FX position when the prevailing market rate is GBP/USD 1.3218-1.3221. How may pips did you earn? 5 pips 9 pips 2 pips .0009 pips If you want to square your long GBP position, at what rate are you going to sell GBP to maximize profits given GBP/USD quotes from three counterparties? BDO: 1.35-45 BPI: 1.40-55 SECB: 1.50-1.65 1.35 1.50 1.65 1.45 Given “RTB 5-12”, which of the following statements is correct? This is a 5-yr RTB issued in 2012 This…12. Let the current spot rate be 1.21 Sf/$. Let the exercise price be 1.20 $/€. Let the volatility of the swiss franc be 0.26. The time to expiration is 3 months. The US rate is 2% and the swiss rate is 4%.18. What is the delta of the call?19. What is the value of the call?20. What is its time value?21. What is the value of the corresponding put?