Finance

FIN359

Derivative Securities

Assignment 1 - Individual Assignment

January 2014 Presentation

Student Name:

Aitullah Jawed (N0704903)

Submission Date: 30 MARCH 2014

Question 1

(1i) Initial outlay = $21,392

(1ii) Initial receipt =$21,392

(1iii) initial premium margin for buy call= 0

Initial premium margin for sell call= $21,392

(1iv) Price to pay to buy 1 put =$32,088

(1v) Amount received if write 1 put =$32,088

(1vi) a) initial premium margin for buy put = 0

b) initial premium margin for sell put = $32,088

(1b)

Stock Price, St | Buy Call | Write Call | Buy Put | Write Put |

590 | -28 | 28 | 18 | -18 |

600 | -28 | 28 | 8 | -8 |

610 | -28 | 28 | -2 | 2 |

620 | -28 | 28 | -12 | 12 |

630 | -28 | 28 | -22 | 22 |

640 | -28 | 28 | -32 | 32 |

650 | -28 | 28 | -42 | 42 |

660 | -18 | 18 | -42 | 42 |

670 | -8 | 8 | -42 | 42 |

680 | 2 | -2 | -42 | 42 |

690 | 12 | -12 | -42 | 42 |

700 | 22 | -22 | -42 | 42 |

710 | 32 | -32 | -42 | 42 |

720 | 42 | -42 | -42 | 42 |

730 | 52 | -52 | -42 | 42 |

|   | | | |

(1c)

The graph above illustrates when would be the best time and price be appropriate for the each of the four startegies.

Question 2

Tata Steel options | | | | | | |

Value of index on May 1 | 630 | | | | | |

Risk free rate | 6% | | | | | |

Dividend yield | 0% | | | | | |

Option maturity , days | 59 | | | | | |

Option maturity , years | 0.163889 | | | | | |

Daycount basis | 360 | | | | | |

American option | | | | | | |

Theoretical put call parity | (St - Sx) < (C - P) < (St - Sx.exp(-rt)) | | | |

Theoretical put price, P | C - (St - Sx.exp(-rt) < P < C - (St - Sx) | | | |

| | | | | | |

Exercise price | Call price | Lower limit | Upper limit | Market Put Price | Overpriced/Underpriced | Arbitrage |

600 | 179.85 | 143.98 | 149.85 | 58.1 | Under | Yes |

620 | 132.4 | 116.33 | 122.4 | 71.75 |...