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
What is the difference between business risk and financial risk? Business risk refers to the improbability a company has with regard to its operating income also known as earni

Is it possible to make money in the stock market when the quotations are going down? What is credit sale? There are three simple moves to make money when prices are going down:

Equity Theor y This theory proposes that individuals measure their out- comes/input ratio. Equity theory distinguish that inspiration is not the outcome of an absolute

Question 1 Write short notes on following- Explain any five important functions of accounting What is Book-Keeping? Explain features of book-keeping Question 2 Ex

Q. Explain Accept-Reject Criteria? Accept-Reject Criteria:- If actual ARR is elevated than the predetermined rate of return .......................Project would be accep

FIXED ASSETS                          200 000                       LONG TERM LIABILITIES CURRENT ASSETS CASH             40 000                       LOAN

Determine the operating cash flow: E4-1 The installed cost of a new computerized controller was $65,000. Calculate the depreciation schedule by year assuming a recovery period

Q. Benefits of the proposed policy change? Short-term sources of debt finance comprise overdrafts and short-term loans. An overdraft offers elasticity but since it is technical

Question : (a) Lucky Corporation is considering an investment in one of the two mutually exclusive proposals: Project A which involves an initial outlay of Rs 170,000 and Proj

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