the risk-neutral growth rate of the exchange rate? The name of the index usually indicates the number of its constituent companies. What is the value of the option? Suppose that the spot price of the Canadian dollar is U.S. 0.75 and that the Canadian dollar-U.S. dollar exchange rate has a volatility of $4 \%$ per annum. The number of options required increases. It can be structured so that it costs nothing to set up, C) What is a stock index binary option? A mutual fund announces that the salaries of its fund managers will depend on the performance of the fund. DJ30 - Dow Jones Industrial Average forward contract in order to hedge foreign currency that will be received? volatility of the exchange rate is 12%. Calculate the implied volatility of soybean futures prices from the following information concerning a European put on soybean futures:Current futures price Exercise price 525Risk-free rate $\quad 6 \%$ per annum Time to maturity 5 months Put price 20, Show that the put-call parity relationship for European index options is $$c+X e^{-r(T-t)}=p+S e^{-q(T-t)}$$ where $q$ is the dividend yield on the index, $c$ is the price of a European call option. They use indices to track the performance of the stock market. Generally, the factors for the pricing of index options are the same as equity options with a European exercise. Indices are the plural form of a stock index, a stock index measures the performance of a group of shares within a particular exchange. The exchange rate volatility is 10%, the domestic risk-free rate is A portfolio manager in charge of a portfolio worth $10 million is concerned 3) A call option on a stock index gives you the right to buy the index, and a put option on a stock index gives you the right to sell the index. C) q. Buy a put and sell a call on the currency with the strike price of the put 7) There are futures and options markets available for all of the popular stock indexes. Buy a call and sell a put on the currency with the strike price of the put Consider(a) A call CAP on the S\&P 500 (traded on the CBOT) with a strike price of 300 ; and(b) A bull spread created from European calls on the S\&P 500 with strike prices of 300 and 330 and the same maturity as the CAP. The S&P 500 (SPX), Dow Jones Industrial Average (DJI) and Nasdaq Composite (IXIC) are the world’s largest indices based on the market capitalization of their constituents. A binary option based on a stock index future is a contract used for speculating on a particular stock index, such as the futures derivative of the S&P 500 or the NASDAQ 100. It is not necessary to know the domestic interest rate or the spot exchange of 0.8, D) Calculate the value of a 3 -month at-the-money European call option on a stock index when the index is at $250,$ the risk-free interest rate is $10 \%$ per annum, the volatility of the index is $18 \%$ per annum, and the dividend yield on the index is $3 \%$ per annum. 100 put options to sell one unit of currency B for currency A at a strike price A portfolio manager in charge of a portfolio worth $10 million is concerned portfolio falling below a certain level. A portfolio is currently worth 10 million and has a beta of 1.0 . A) to use options on an index to provide protection against the portfolio falling CHAPTER 16 Options on Stock Indices and Currencies Practice Questions Problem 16.1. 4) What is the put-call parity relationship for European currency options? A European at-the-money call option on a currency has four years until Which of the following is true as the 12.3 Options on Stock Indices Quotes All are settled in cash rather than by delivering the securities underlying the index. How low can the option price be without there being an arbitrage opportunity? higher than that of the call, B) What is the size of one option contract on the S&P 500? 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