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Alenkinab [10]
3 years ago
13

34. Consider a binary (digital) option on a stock currently trading at $100. The option pays a $1 if the stock price goes below

$100 three months from now. The annualized standard deviation of the stock is 20%, and the risk-free rate is 0%. Suppose you sold a 100 of these binary options. How many shares of the underlying stock you need to long/short to achieve a delta-neutral position
Business
1 answer:
Vladimir [108]3 years ago
3 0

Answer:

48

Explanation:

N(d2): probability of call option being exercised

So current stock price = 100

K strike price = 100

r risk free rate = 0% = 0.05

s: standard deviation = 20%

t: time to maturity = 3month = 0.25 year

di – In(So/K) + (r +0.5 * 5%) ** S*t0.5

d1 = 0.05

d2 = dl - 5*10.5

d2 = -0.05

N(d2) = normsdist(d2) = 0.48

Pay-off per option = 1

No. of options sold = 100

Expected pay-off = -0.48*1*100 = -48

Therefore go long on 48 shares so that if stock price becomes 101, pay-off from stocks = 48*(101-100) = 48

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1) Write an SQL statement for the HAPPY INSURANCE database that adds the column ClientPhone to the table CLIENT.
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8 0
3 years ago
Compass Inc. purchased 1250 bags of insulation, on account, from Glassco Inc. The bags of insulation cost $5.50 each. Compass pa
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<u>Solution and Explanation:</u>

<u>Journal entry to record the purchase the bags of insultaion.</u>

Date            Particulars                                  Debit                       Credit

                 Inventory                                       $6875

                 accounts payable                                                        $6875

(Purchased insulated bags from Glassco Inc., 1250bags at the rate $5.5 each)

<u>entry to record the payment for shipping</u>

                Inventory                                          $320

                   cash                                                                           $320

( paid shipping charges for bags to warehouse)

<u>entry for return of the defective bags</u>

              accounts payable                                 $275

                   Inventory                                                                       $275

( returned defective bags to glassco Inc)

<u>To record the payment for the bags kept by compass.</u>

          Accounts payable                                        $6600

            cash                                                                                           $6600

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Answer:

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Balance as per bank statement            $82,500

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Interest earned                                      28

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Rent Expense (understated)             -300

Adjusted cash account balance $112,933

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