Calculate a volatility smile for 3 month options

Assignment Help Financial Management
Reference no: EM131237975

A futures price is currently $40. The risk-free interest rate is 5%. Some news is expected tomorrow that will cause the volatility over the next 3 months to be either 10% or 30%.

There is a 60% chance of the first outcome and a 40% chance of the second outcome. Use DerivaGem to calculate a volatility smile for 3-month options.

Reference no: EM131237975

Questions Cloud

Support the overall objectives of a company : Discuss the procurement contract life cycle. How does this support the overall objectives of a company?
Develop a treatment plan for harvey wife : Choose one of the following cultures: Hispanic, African American, or Asian American, and analyze how being a part of this culture might affect Harvey and his family's treatment and recovery. Explain at least two issues present in treating substan..
Analyze the type of market in which your selected product : Define the type of market in which your selected product will compete, along with an analysis of competitors and customers. Analyze any comparative advantages and international trade opportunities.
Describe the process in which soap cleans a drop of grease : Describe the process in which soap "cleans" a drop of grease off a piece of clothing. Would using soap mixed with alcohol be more effective than using soap and water? Explain.
Calculate a volatility smile for 3 month options : There is a 60% chance of the first outcome and a 40% chance of the second outcome. Use DerivaGem to calculate a volatility smile for 3-month options.
Draw the structural formula for 1,4-diethylbenzene : Draw the structural formula for 1-bromo-2-methyl-benzene. Draw the structural formula for 1,4-diethylbenzene.
What are values of 1 month call options with strike prices : What is the risk-neutral probability of a positive outcome? -  What are the values of 1-month call options with strike prices of $19, $20, $21, $22, and $23?
Awareness of the processes and requirements : What skills make a business professional adept at maintain an awareness of the processes and requirements of each of the primary business functions?
What types of organic compounds are these : Look up the structural formula of aspirin (acetylsalicylic acid) and Tylenol (acetaminophen). What types of organic compounds are these? What alkyl and functional groups do they contain, and how are they similar?

Reviews

Write a Review

Financial Management Questions & Answers

  What is the required return for the overall stock market

Assume that the risk free rate is 6% and the required rate of return on the market is 13%. What is the required rate of return for Sears, which has a beta of 2.0? What is the required return for the overall stock market?

  How the transaction will affect the banks deposit balances

A corporate customer borrows $ 150,000 against the firm's credit line at a local bank. Indicate with a T- account how the transaction will affect the bank's deposit balances held at the Federal Reserve when the firm spends the proceeds.

  Capital account assuming no statistical discrepancy

If the balance on the current account is $842 billion and the balance on the financial account is -$603 billion, what is the balance on the capital account assuming no statistical discrepancy?

  Goals for equilibrium inflation rates and employment growth

What are the Fed’s goals for equilibrium inflation rates and employment growth? What circumstances in the US and world economy suggest that a “dovish,”slow approach to raising money market rates is appropriate at this time?

  New business-transactions during first year of operations

Isabel Lopez started Biz Consulting, a new business, and completed the following transactions during its first year of operations. a. I. Lopez invests $61,000 cash and office equipment valued at $32,000 in the company in exchange for its common stock..

  The primary goal of financial managment

The primary goal of financial managment is to: 1. minimize operational costs and maximize firm efficiency. 2. maximize dividends per share of the existing stock. 3. avoid financial distress 4. maintain steady growth in both sales and net earnings. 5...

  Evaluating two different silicon wafer milling machines

You are evaluating two different silicon wafer milling machines. The Techron I costs $261,000, has a three-year life, and has pretax operating costs of $70,000 per year. The Techron II costs $455,000, has a five-year life, and has pretax operating co..

  What are the operating cash flows

ABC Inc. has estimated the following revenues and expenses related phase I of a proposed new housing development? Incremental sales= $682,242, total cash expenses $341,299, depreciation $32,351, taxes 27%. What are the operating cash flows?

  What is the sustainable growth rate for the company

Gilmore, Inc., had equity of $215,000 at the beginning of the year. At the end of the year, the company had total assets of $370,000. During the year, the company sold no new equity. Net income for the year was $45,000 and dividends were $6,600. What..

  What is her monthly payment by formula

For the best terms on a loan or credit card, you need a credit score above 700. To achieve this, start establishing credit now. Pay all of your bills on time. What is her monthly payment by formula? (Round your answer to the nearest cent.)

  What are the portfolio weights for a portfolio

What are the portfolio weights for a portfolio that has 122 shares of Stock A that sell for $32 per share and 102 shares of Stock B that sell for $22 per share? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g.,..

  The project will create the cash flows

Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash Flow 0 –$583,000 1 213,000 2 156,000 3 221,000 4 200,000 All cash flows will occur in Erewhon and are expressed in dollars...

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd