1. What is the value of a European call option if the underlying stock price...
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1. What is the value of a European call option if the underlying stock price is $131, the strike price is $120, the underlying stock volatility is 42 percent, and the risk-free rate is 6.2 percent? Assume the option has 134 days to expiration. 2. You are managing a pension fund with a value of $320 million and a beta of 1.70 . You are concerned about a market decline and wish to hedge the portfolio. You have decided to use SPX calls. How many contracts do you need if the delta of the call option is .64 and the S\&P Index is currently at 1,250 ? 3. Suppose you hold LLL employee stock options representing options to buy 10,400 shares of LLL stock. LLL accountants estimated the value of these options using the BlackScholes-Merton formula and the following assumptions: S=currentstockprice=$24.67K=optionstrikeprice=$25r=risk-freeinterestrate=.042=stockvolatility=.32T=timetoexpiration=3.5years You wish to hedge your position by buying put options with three-month expirations and a $30 strike price. How many put option contracts are required
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