Stock index options, Corporate Finance

Explain with proof that c >= max(S - X, 0), where c is the value of the European call option, S is the price of the underlying asset and X is the strike of the option.

The following data pertaining to the ST Stock Index Options:

3000/3100 Put (vertical) Spread premium:

3100/3200 Put (vertical) Spread premium:

(i) Determine the premium of the 3000/3100/3200 Long Butterfly Spread.

(ii) Upon expiration, the ST index settles at 3050, what is the profit/loss of this Long Butterfly strategy?

(a) The Nikkei 500 Stock Index is now 10300 points. If the risk-free rate is 0.5%, and the dividend yield is 2%, 

(i) What is the Nikkei 500 Index Futures expiring in 50 days?

(ii) If this Index Futures settled at 10200, what is the profit/loss if a trader shorted at the price in part (i) for 50 contracts (Every index point worth JPY500).

(b) If the yield curve is expected to be flattening, what SPREAD trading strategy would you adopt with Eurodollar Interest Rate Futures?


(c) A portfolio manager wishes to hedge his $4.5 million stock portfolio with ST Index Futures. Given that the standard deviation of the returns of his portfolio is 0.2 and that of the ST Index Futures is 0.3, and the correlation between the two is 0.75.

(i) What is the Minimum Variance Hedge Ratio?

(ii) What is the effectiveness of the hedge?

(iii) How many ST Index Futures contracts are required to hedge if the ST Futures is at 3000 index points (Every index point worth $10).

(iv) To short or to long the ST Index Futures?

(d) How would you hedge the increasing volatility of the stock market with Stock Index Options?

Posted Date: 3/8/2013 5:51:14 AM | Location : United States

Related Discussions:- Stock index options, Assignment Help, Ask Question on Stock index options, Get Answer, Expert's Help, Stock index options Discussions

Write discussion on Stock index options
Your posts are moderated
Related Questions
The First Bank of Ellicott City has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.65 on this stock. What is the current price of

The first part requires you to prepare a basic master budget. The general description is provided in Part A, in this document. However the data for the assignment is to be obtained

Question: (a) According to Modigliani and Miller's Theory of Capital Structure (1963), companies should make maximum use of gearing. Briefly, describe factors which might pr

what is a multinational corporation? Why do firms expand into other countries?

Seattle Health Plans currently uses zero debt financing.  Its operating income (EBIT) $1 million, and it pays taxes at a 40 percent rate.  It has $5 million in assests and because

Risk Aversion and the Equity Risk Premium Case Study On the advice of some of its wealthiest alumni, College has borrowed £15m on a 40-year inflation- linked loan. One year

problem 1 (a) (i) Define Corporate Governance. (ii) Show the ethical implications behind Corporate Governance. (b) (i) Why do organizations engage in social accounting?

Question : (a) What are the three broad categories of buyers and sellers in the financial markets? (b) Differentiate between the primary and the secondary financial marke

Question: Trade finance is much facilitated by banks' intervention as guarantors for the execution of financial commitments on behalf of importers. Banks provide a large variet

a) Describe what you understand by corporate identity in marketing. b) Show how corporate identity is normally visibly manifested. c) Management has delegated you the role o