Calculate the price of a binary call option on stock

Assignment Help Financial Management

Reference no: EM131513335

“Binary options are options with discontinuous payoffs. A simple example of a binary option is a cash-or-nothing call. This pays off nothing if the asset price ends up below the strike price at time T and pays a fixed amount, Q, if it ends up above the strike price. In a risk-neutral world, the probability of the asset price being above the strike price at the maturity of an option is, with our usual notation, N(d2). The value of a cash-or-nothing call is therefore Qe-rTN(d2). A cash-or-nothing put is defined analogously to a cash-or-nothing call. It pays off Q if the asset price is below the strike price and nothing if it is above the strike price. The value of a cash-or-nothing put is Qe-rTN(-d2).”

Using Excel (or otherwise), calculate the price of a binary call option on your stock maturing on

January 19, 2018 that pays $100 if the stock price ends up below the strike that is closest to being at-the-money and zero otherwise (give your answer in dollars, to 4 d.p.).

Reference no: EM131513335

Questions Cloud

How much can he contribute to a traditional ira in tax year : How much can he contribute to a Traditional IRA in tax year 2016 (that qualifies for tax deferral)?

Calculate the debris impact load : Consider the building in Figure, which has a width into the page of 35 ft. Maximum inundation height, , and flow velocity, , have been determined as 33 ft.

Disadvantages of using bank credit line : What are the advantages and disadvantages of using bank credit line

Determine the reactions of each structure in given figures : Determine the reactions of each structure in Figures P3.2

Calculate the price of a binary call option on stock : Calculate the price of a binary call option on your stock maturing

Constant growth valuation-stock current value per share : What is the stock's current value per share?

Realized rate of return has averaged : Mudd has a beta of 1.5, and its realized rate of return has averaged 9.5% over the past 5 years.

What will the cash flows for this project be : The firm’s marginal tax rate is 39 percent. What will the cash flows for this project be?

Plot the average cost and average variable cost on a graph : A manufacturer of electronics roducts is considering entering the telephone equipment business. It estimates that if it were to begin making wireless.

User Account

All Pages