Economics Homework Help

1.

You have a stock with a price of 150 annualized volatility 30% and annualized risk free is 3%.

a.Assuming the option expires in half a year and has a strike of 130 what is its price using BS formula?

b.What is the hedge ratio?

c.Use the call put parity to find the put price

2.

Up move is 3/2 and down move is 2/3 for a stock with the price of 100$.

a.Set up a two year tree for this stock

b.What is the RNP assuming the annual risk free rate is 5%?

3.

a.Use the tree from previous question to value a put option with a strike of $100

b.Value an option who gives u a payoff of 100 if the price of stock >100 and 0 otherwise.

4.

a.Use the replicating portfolio technique to value an option that gives u 10$ in the good state of the world and -5 in the bad state of the world ( question 3)

b.Now use the RNP technique

c.Did u get the same result?