期权市场机制代写 American option代写

Finc6010 Week 6

Mechanics of Options Markets

期权市场机制代写 Practice Questions CONSOLIDATE Problem 9.8 Explain why an American option is always worth at least as much as a European option

Practice Questions 期权市场机制代写

Consolidate

Problem 9.8

Explain why an American option is always worth at least as much as a European option on the same asset with the same strike price and exercise date.

Problem 9.9

Explain why an American option is always worth at least as much as its intrinsic value.

Problem 9.10

Explain carefully the difference between writing a put option and buying a call option.

Problem 9.11

Suppose that a European call option to buy a share of Rio Tinto for AUD 100.00 costs AUD 5.00 and is held until maturity. Under what circumstances will the holder of the option make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a long position in the option depends on the stock price at maturity of the option.

Problem 9.12 期权市场机制代写

Suppose that a European put option to sell a share of BHP for AUD 60 costs AUD 8 and is held until maturity. Under what circumstances will the seller of the option (the party with the short position) make a profit? Under what circumstances will the option be exercised? Draw a diagram illustrating how the profit from a short position in the option depends on the stock price at maturity of the option.

Problem 9.13

A trader buys a call option to buy a share of BHP with a strike price of AUD 45 and a put option to sell a share of BHP with a strike price of AUD 40. Both options have the same maturity. The call costs AUD 3 and the put costs AUD 4. Draw a diagram showing the variation of the trader’s profit with the BHP stock price.

Problem 9.14

Discuss whether the following statements are true regarding the Low Exercise Price Options (LEPOs) traded in the Australian Stock Exchange (ASX).

a) The exercise price is always 10 cents.

b) Margin lending is allowed for both buyers and sellers.

c) LEPOs are usually traded at low premium due to the low exercise price.

Problem 9.15

What is the effect of an unexpected cash dividend on: (a) a call option price, and (b) a put option price?

Development

Problem 9.16

Explain why the market maker’s bid–offer spread represents a real cost to options investors.

Problem 9.17

Describe the terminal value of the following portfolio: a newly entered-into long forward contract on an asset and a long position in a European put option on the asset with the same maturity as the forward contract and a strike price that is equal to the forward price of the asset at the time the portfolio is set up. Show that the European put option has the same value as a European call option with the same strike price and maturity.

Problem 9.18

The treasurer of a corporation is trying to choose between options and forward contracts to hedge the corporation’s foreign exchange risk. Discuss the advantages and disadvantages of each.

Problem 9.19 期权市场机制代写

A corporate treasurer is designing a hedging program involving foreign currency options. What are the pros and cons of using: (a) the NASDAQ OMX, and (b) the over-the-counter market for trading?

Problem 9.20

Consider an exchange-traded call option contract to buy 500 shares with a strike price of AUD 40 and maturity in four months. Explain how the terms of the option contract change when there is:

a) A 10% stock dividend

b) A 10% cash dividend

c) A 4-for-1 stock split

Problem 9.21

Compare and contrast the restrictions on margin trading between the US and the Australian option market.

Problem 9.22

Briefly explain special tax considerations and related rules for options traders in Australia.

Extension

Problem 9.23

‘If most of the call options on a stock are in the money, it is likely that the stock price has risen rapidly in the last few months.’ Discuss this statement.

Assignment Questions 期权市场机制代写

Problem 9.24

The price of a stock is USD 40. The price of a one-year European put option on the stock with a strike price of USD 30 is quoted as USD 7 and the price of a one-year European call option on the stock with a strike price of USD 50 is quoted as USD 5. Suppose that an investor buys 100 shares, shorts 100 call options and buys 100 put options. Draw a diagram illustrating how the investor’s profit or loss varies with the stock price over the next year. How does your answer change if the investor buys 100 shares, shorts 200 call options and buys 200 put options?

Problem 9.25

‘If a company does not do better than its competitors but the stock market goes up, executives do very well from their stock options. This makes no sense.’ Discuss this viewpoint. Can you think of alternatives to the usual executive stock option plan that take the viewpoint into account?

Problem 9.26

Use DerivaGem to calculate the value of an American put option on a non-dividend-paying stock when the stock price is USD 30, the strike price is USD 32, the risk-free rate is 5%, the volatility is 30% and the time to maturity is 1.5 years. (Choose ‘Binomial American’ for the option type and 50 time steps.)

a) What is the option’s intrinsic value?

b) What is the option’s time value?

c) What would a time value of zero indicate? What is the value of an option with zero time value?

d) Using a trial and error approach, calculate how low the stock price would have to be for the time value of the option to be zero.

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