Relationship between cash or call asset-or-nothing, Financial Accounting

Options with discontinuous payoffs are called Binary options. An example is the cash-or-nothing callwhich pays nothing if the stock price at the maturity of the option is below the strike price and pays a fixed amount Q if the stock price is above the strike price. Another type of binary option is an asset-or-nothing call. This call pays nothing if the stock price is below the strike price at the maturity of the option and pays the stock price (ST) if the stock price is above the strike price. A regular European call is equivalent to a long position in an asset-or-nothing call and a short position in cash-or-nothing call.

The stock price is $50, the volatility of the stock is 30%, and the interest rate is 6%. Consider a cash-or-nothing call with a strike price of $52 and maturity of 6 months and the fixed amount it pays, when the stock price is above the strike price, is the strike price itself. Also consider a asset-or-nothing call with the same strike price and maturity as the earlier call. Use simulation to arrive the price of these two calls. Also, verify the relationship between cash-or-nothing call, asset-or-nothing call, and a regular call option. Do 1000 simulations.

Posted Date: 5/7/2013 5:36:08 AM | Location : United States







Related Discussions:- Relationship between cash or call asset-or-nothing, Assignment Help, Ask Question on Relationship between cash or call asset-or-nothing, Get Answer, Expert's Help, Relationship between cash or call asset-or-nothing Discussions

Write discussion on Relationship between cash or call asset-or-nothing
Your posts are moderated
Related Questions
Explain:- Q.1 Explain the ways in which the needs of internal and external users of accounting information are the same and different. Q.2 Why is it important for financial sta

THE PETITION Petition by debtor : If the debtor presents his own petition, a receiving order is made at once without a court hearing and an adjudication order may also be ma

Once credit has been extended it is vital to ensure that customers abide by agreed terms of trade. Regular checks on customer accounts for instance using an aged receivables analys

Baruch Lev, who is a professor of accounting at New York University and a globally known academic for his research on financial reporting for intangibles, is that the economy has c

Assume that the company has an investment opportunity. Building a new factory would cost $750 million but would reduce cash operating costs by $150 million per year for the next 1

Firm Value: Old School Corporation expects an EBIT of $9,000 every year forever. Old School currently has no debt, and its cost of equity is 18 percent. The firm can borrow at

How do I figure fair value of assets..2 year estimated useful life and indefinite life recognized by purchased company

The following items are found in the trial balance of M/s Sharada Enterprise on 31st December, 2000. 10 marks Summer 2013 Sundry Debtors Rs.160000 Bad Debts written off Rs 9000 Dis

Lockheed Martin's management wishes to find out whether they have excess debt capacity. Its current market value of equity is $40 b and its book value of debt is $

Identify the various prices for job To identify the various prices for job, there are numerous points to be considered, including: ?How many garages shall we visit? ?What