1 / 7

C hapter 23

SOLUTIONS. C hapter 23. DERIVATIVES: MANAGING FINANCIAL RISK. PROBLEM 23.10. A call option at a strike price of Rs 176 is selling at a premium of Rs 18. At what price will it break even for the buyer of the option?. SOLUTION 23.10.

farrah-galloway
Download Presentation

C hapter 23

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. SOLUTIONS Chapter 23 DERIVATIVES: MANAGING FINANCIAL RISK

  2. PROBLEM 23.10 • A call option at a strike price of Rs 176 is selling at a premium of Rs 18. At what price will it break even for the buyer of the option? SOLUTION 23.10 • To recover the option premium of Rs 18, the spot will have to rise to Rs 176+Rs 18 = Rs 194. The option would be break even for the buyer at a price of Rs 194.

  3. PEOBLEM 23.11 • Spot value of S&P CNX Nifty is 1200. An investor bought one-month S&P CNX Nifty at 1,220 with a call option for a premium of Rs 10. What type of option is it? SOLUTION 23.11 • It is an out-of-money option

  4. PROBLEM 23.12 • A stock currently sells for Rs 120. The put option to sell the stock sells at Rs 134 and costs Rs 18. Compute the time value of option. SOLUTION 23.12 • The time value of the option is Rs 4

  5. PROBLEM 23.13 • If the daily volatility of the Nifty is 1.92, compute the sigma figure used in the Black Scholes formula. SOLUTION 23.13 • The Black-Scholes formula uses the annualised sigma. The daily sigma must be expressed in terms of annualised sigma. • Sigma annual = sigma daily X Number of trading days per year • on an average there are 250 trading days in a year. Therefore, the figure to be used = 1.92 X 250 = 30 per cent.

  6. PROBLEM 23.14 • Assuming that the daily volatility of the Nifty is 1.75 and trading happens on 256 days in a year, compute the sigma figure used in the Black Scholes formula. SOLUTION 23.14 • The Black-Scholes formula uses the annualised sigma. • Sigma annual = sigma daily X Number of trading days per year • if there are 256 trading days in a year, the figure to be used • = 1.75 X 256 = 28 per cent

  7. FINANCIAL END OF THE CHAPTER MANAGEMENT

More Related