An index price is currently $150. It is known that at the end of six...
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An index price is currently $150. It is known that at the end of six months it will be either $180 or $120. The risk-free rate of interest with semiannual compounding is 6% per annum. Required: I. Calculate the value of a six-month European CALL option on the stock with an exercise price of $147. Required to design a one-step tree and include the prices of the stock and the value of the option on every node. EUROPEAN CALL Si= f= S2= f- II. Verify that no-arbitrage arguments (Calculate and apply 4 "Delta") and risk-neutral valuation arguments (Calculate and apply probability "p") give the same answers. Required the calculation. III. What is the meaning of A "Delta"? IV. What will be the initial riskless portfolio? V. Suppose a trader sells 1,000 options (10 contracts). What position and number of stocks are necessary to hedge the trader's position at the time of the trade
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