Calculate the cumulative probability , Financial Management

Compound options are usually cheaper than vanilla options and we know that there are four main types of compound options: a call on a call; a put on a call; a call on a put; a put on a put.

a) Explain the difference of these compound options.

b) Consider a put on call option that gives the option holder the right to sell a call option for 34, three months from today. The strike on the underlying call option is 530, the time to maturity on the call is six months from today, the price on the underlying stock index 500, the risk free interest rate is 7%, and the stock index pays dividend at a rate of 2.48% annually and has a volatility of 25%. Write the formula you would use to value this compound option.

c) Explain the meaning of the different variables.

d) Calculate the cumulative probability of the standardized bivariate normal distribution using the Drezner approximation and compare your results with the values obtained in excel using the function BiNorm(a,b,ρ).

e) Calculate the value of the critical value I needed to price this put on the call.

f) Calculate the value of this compound option.

 

Posted Date: 2/23/2013 4:58:56 AM | Location : United States







Related Discussions:- Calculate the cumulative probability , Assignment Help, Ask Question on Calculate the cumulative probability , Get Answer, Expert's Help, Calculate the cumulative probability Discussions

Write discussion on Calculate the cumulative probability
Your posts are moderated
Related Questions
Scenario:  ABC Company sells widgets in three varieties (blue, red, and yellow) but has lost money for the past three years.  Competitive intelligence shows the Company's products

Inflation in International Markets In 1983, Gultekin tried to find out the relation between stock return and the inflation rates (expected/unexpected). He accomplished this by

Performance budget: it involves evaluation of the performance of the organization in the context of both overall and specific objectives of the organization. As per the National I

1. Capital Asset Pricing Model and Multinational Corporations Why do some critics say the CAPM model is not appropriate in an international setting? Please explain a way that

what is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million,if the average interest rate on debt is 8.5% and the marginal tax rate i

Part B This case is intended to be an introduction to the various methods used in capital budgeting and looks at some of the decisions that may have to be made when evaluating pro

Features of Capital Budgeting Decisions 1.       Existence of potentially large anticipated profits. 2.       Involves a comparatively high degree of risk 3.       Exist

Return on Investment (ROI) In accounting it is a measure of the earning power of an industries asset. A high return on investments is desirable. ROI is widely described as net

The amount by which the market price exceeds the conversion value or the investment value is called as the premium.

Deterministic Model After the macroeconomic, industrial and business analysis of the company chosen is done First of all a point estimate for all the input variables in a valua