(a) Use put–call parity to relate the initial investment for a bull spread created using calls to the initial investment
Posted: Sun May 29, 2022 5:08 pm
(a) Use put–call parity to relate the initial investment
for a bull spread created using calls to the initial investment for
a bull spread created using puts. [28 Marks]
(b) How can a forward contract on a stock with a
particular delivery price and delivery date be created from
options?
[18 Marks]
(c) Explain what is a covered call and what is the
intuition behind this strategy. You should include a graphical
illustration in your answer showing the profit pattern from this
strategy. What position in put options is equivalent to a covered
call and why? [18 Marks]
(d) Provide a full derivation of a one-step binominal
option pricing model. [36 Marks]
for a bull spread created using calls to the initial investment for
a bull spread created using puts. [28 Marks]
(b) How can a forward contract on a stock with a
particular delivery price and delivery date be created from
options?
[18 Marks]
(c) Explain what is a covered call and what is the
intuition behind this strategy. You should include a graphical
illustration in your answer showing the profit pattern from this
strategy. What position in put options is equivalent to a covered
call and why? [18 Marks]
(d) Provide a full derivation of a one-step binominal
option pricing model. [36 Marks]