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
Will you please give the defination of "Future Value Of An Annuity"?

Citilink has just completed its 2010/11 management accounts. The directors are going to review the financial statements in the next board meeting. You have to prepare a FINANCIAL

Q. Certified Management Accountant? Certified Management Accountant (CMA) - An accreditation conversed by the Institute of Management Accountants which indicates the designee h

1. (a) A barbell is a approach of maintaining a portfolio of securities concentrated at two extremes in terms of maturity date very short term and very long term. A positive

Investment Objectives: Any investment should always start with identifying its objective. Thus, the first step in the pension fund investment management system is defining the

Question: Consider the following information:   Stock A Stock B Beta 0.8 1.4 Share price, $

Floria Scarpia believes that many of her clients could benefits from using international investments to diversify their portfolios but many are reluctant to invest abroad -especial

Read the journal article Lafferty, B. A., & Hult, G. T. M. (2001) ‘A synthesis of contemporary market orientation perspectives’, European Journal of Marketing, 35 (1/2), pp. 92–109

1. If Robinson wishes to maximize its total market value, would you recommend that it issue debt or equity to finance the land purchase? Explain. 2. Construct Robinson’s market va

Along with the fixed capital nearly every Small-Scale industries requires working capital though the extent of working capital requirement differs in different businesses. Working