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

Question: PART A With the view to modernise its accounting system Government is considering adopting International Public Sector Accounting Standards (IPSAS) so as to maxim

Compounding or Future Value Concept: - Under this process of compounding the future worth of all cash inflows at the end of the time horizon at a particular rate of interest are fo

What are the benefits of the JIT inventory control system? The just-in-time that is abbreviated as JIT inventory control system lowers inventory carrying costs and tends to inc

The option features embedded in many bonds and fixed-income securities have made the binomial interest rate tree approach a valuable model for pricing debt. Binomial

What is Settlement date? Please provide me report on Settlement date. It is about 2000 words count report on topic Settlement date.

Options Markets: Man has always been innovative and ingenuous. His determination to improvise and overcome the limitations of various processes has resulted in phenomenal and e

Cash flow duration, like effective duration, considers the change in the cash flow due to prepayment with the change in the interest rate. In effective duration,

Types of Bonds 1. Secured Versus Unsecured Bonds 2.  Senior versus Subordinate Bonds 3.  Registered and Unregistered Bo

The Nu-Nu Brothers Inc. (NNBI) has the following capital structure, which it considers to be optional: Debt 25% Preferred Stock 15% Common Equity 60% NNBI''s expected net income t