If the current price of spot gold is 2000. In the next two periods the price of gold is expected to either go up by 5% o
Posted: Mon Jan 17, 2022 8:09 am
If the current price of spot gold is 2000. In the next two
periods the price of gold is expected to either go up by 5% or
decline by 5% each period. The risk-free rate is 1% each
period.
QA. What is the value of a European call option on gold which
matures in one period with a strike price of 2000? What is the
hedge ratio? What is the value of a put option with the same strike
price?
QB. What is the value of a call option on gold which matures in
two periods with a striking price of 2000? What are the hedge
ratios? What is the value of a put option with the same strike?
Compare the values of the options with the option values obtained
in A.
periods the price of gold is expected to either go up by 5% or
decline by 5% each period. The risk-free rate is 1% each
period.
QA. What is the value of a European call option on gold which
matures in one period with a strike price of 2000? What is the
hedge ratio? What is the value of a put option with the same strike
price?
QB. What is the value of a call option on gold which matures in
two periods with a striking price of 2000? What are the hedge
ratios? What is the value of a put option with the same strike?
Compare the values of the options with the option values obtained
in A.