Design a digital option as a sequence of calls, Financial Management

An individual agent thinks that there is a high probability that the Dow Jones will have a payoff (or points) between a=10000 and b=12000 at t=1.

Design a digital option (see Figure) as a sequence of calls on the Dow that converges to a pure bet on getting $1 on the interval [10000, 12000], i.e. if the Dow lies between S ? [10000,  12000] at t=1, then the portfolio of calls pays off exactly $1. The payoff is 0 otherwise.

1201_Design a digital option as a sequence of calls.png

Posted Date: 3/23/2013 2:37:39 AM | Location : United States







Related Discussions:- Design a digital option as a sequence of calls, Assignment Help, Ask Question on Design a digital option as a sequence of calls, Get Answer, Expert's Help, Design a digital option as a sequence of calls Discussions

Write discussion on Design a digital option as a sequence of calls
Your posts are moderated
Related Questions
Filer Manufacturing has 8.9 million shares of common stock outstanding. The current share price is $59, and the book value per share is $4. Filer Manufacturing also has two bond is

Q. Types of financial statement analysis? 1) External analysis This analysis is performed by external stakeholders like lenders, suppliers, investors, and governments. 2)

the nu-nu brothers inc. (NNBI) has the following capital structure,

A. Mitt starts Examine Your Zipper Incorporated ("XYZ") in 2012 by selling common stock of $12,000,000. He promises the investors in his company a 15% return on their capital. B

What are the advantages of “collecting early” and how do companies attempt to do this? Money has time value.  The sooner cash is collected, the better.  Companies employ regional

Determine the factors of financial risk by giving example W. T. L. Company's cost of long-term debt two years ago was 8 percent.  This 8 percent was found to represent a 4- per

Beta Value Risk is an important consideration while investing in any security. It is the possibility that realised returns will be less than the returns expected. The degree, t

Meaning merits nd demerits of modern approch of financial management

Two years ago, Randburg Ltd needed to accumulate a total of R250000 by the end of 5 years to acquire new imported machinery. To do so Randburg Ltd makes quarterly-annual deposits i

Illustrate the meaning of Gearing Gearing is the relationship between equity anddebt. Debt is typically long term liabilities that the organisation has. Equity is all the shar