Annuities and Other Retirement Products: Designing the Payout Phase (Directions in Development)_12

Tham khảo tài liệu 'annuities and other retirement products: designing the payout phase (directions in development)_12', tài chính - ngân hàng, ngân hàng - tín dụng phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả
Nội dung trích xuất từ tài liệu:
Annuities and Other Retirement Products: Designing the Payout Phase (Directions in Development)_12 Q uestions and answers 2 83 Chapter 11 questions 1 Coca-Cola’s earnings prospects are good, but the stock market as a whole has been bearish and volatile lately. The market could rally, or it could retrace to recent lows, dragging Coca-Cola along with it. The stock price is 52.67, and the following August options are listed with 90 days until expiration: Coca-Cola at 52.67 August options with 90 days until expiration: 45.00 47.50 50.00 52.50 55.00 57.50 60.00 Coca- Cola strike 4.04 2.52 1.45 0.79 0.34 Calls 0.82 1.30 2.05 2.90 4.25 Puts (a) i) What is the cost of the August 52.50 straddle? ii) At expiration, what is the upside break-even level? iii) What is the downside break-even level? iv) What is the maximum profit? v) What is the maximum loss? vi) What is the profit/loss if the stock closes at 57.50 at expiration? (b) i) What is the cost of the long August 50–55 strangle? ii) At expiration, what is the upside break-even level? iii) What is the downside break-even level? iv) What is the maximum profit? v) What is the maximum loss? vi) What is the profit/loss if the stock closes at 47.50 at expiration? (c) Why is the 50 put priced higher than the 55 call? 2 In the UK, the outlook for Sainsbury during the next several months is for continued good, but not spectacular, trading, and you expect the shares to be stable. The implied volatility for the options is 38 per cent, down from over 50 per cent. It is November, and the January options are entering their accel- erated time decay period. Sainsbury is trading at 537.5, and the following options prices are listed: Sainsbury at 537.5 January options with 70 days until expiry: Q uestions and answers 2 84 420 460 500 550 600 650 700 Strike 34 17.5 8 3 Calls 3 8 17.5 39.5 Puts i) What is the income from selling the January 500–600 strangle? ii) At expiry, what is the upside break-even level? iii) What is the downside break-even level? iv) What is the maximum profit? v) What is the maximum loss? Chapter 11 answers 1 (a) i) 2.52 + 2.90 = 5.42 ii) 52.50 + 5.42 = 57.92 iii) 52.50 – 5.42 = 47.08 iv) upside unlimited; downside, value of the stock v) 5.42 vi) [57.50 – 55] – 5.42 = –2.92 loss (b) i) 2.05 + 1.45 = 3.50 ii) 55 + 3.50 = 58.35 iii) 50 – 3.5 = 46.5 iv) upside unlimited; downside 50 – 3.5 = 46.5 v) 3.50 vi) 5 – 3.5 = 1.5 (c) Because of the put volatility skew. This explained in Part 4. 2 i) 17.5 + 17.5 = 35 ii) 600 + 35 = 635 iii) 500 – 35 = 465 iv) 35 v) unlimited upside, 465 on the downside. Q uestions and answers 2 85 Chapter 12 questions 1 Refer to the previous set of Sainsbury January options: Sainsbury at 537.5 January options with 70 days until expiry 420.0 460.0 500.0 550.0 600.0 650.0 700.0 Strike 34.0 17.5 8.0 3.0 Calls 3.0 8.0 17.5 39.5 Puts (a) i) What is the income from the short January 460–500–600–650 iron condor? This is an asymmetric spread. ii) At expiry, what is the upside break-even level? iii) What is the downside break-even level? iv) What is the maximum upside loss? v) What is the maximum downside loss? vi) What is the maximum profit from this spread? vii) What is the profit range? (b) i) What is the income from the short January 460–550–650 iron butterfly? This is also an asymmetric spread. ii) At ex ...