Test Bank: Chapter 12
Binomial Trees
1.The current price of a non-dividend-paying stock is $30. Over the next six months
it is expected to ri to $36 or fall to $26. Assume the risk-free rate is zero
(i)What long position in the stock is necessary to hedge a short call option whencorrespond
the strike price is $32? Give the number of shares purchad as a
percentage of the number of options that have been sold _ _ _ _ _ _
(ii)What is the value the call option _ _ _ _ _ _
(iii)What long position in the stock is necessary to hedge a long put option when
the strike price is $32. Give the number of shares purchad as aepicor
percentage of the number of options purchad option _ _ _ _ _ _
(iv)What is the value of the put option _ _ _ _ _ _
(v)What is the risk neutral probability of the stock price moving up _ _ _ _ _ _
2.In a Cox-Ross-Rubinstein binomial tree the formula for the proportional
up-movement, u , is with the book ’s notation, (circle one)
(a)
t r e u (b)t r e u
耳环的英文(c)t e u
(d)t e
u 3.In a Cox-Ross-Rubinstein binomial tree the relationship between the proportional
down-movement, d, and the proportional up-movement, u , is (circle one)
(a)d = u - 1
(b)d = 1/u
(c)d=2-ureflecton
(d)None of the above
4.American options can be valued using a binomial tree by (circle one)
沥青铀矿
(a)Checking whether early exerci is optimal at all nodes where the option is
in-the-money
(b)Checking whether early exerci is optimal at the final nodes
(c)Checking whether early exerci is optimal at the penultimate nodes and the
架子英文final nodesformal
(d)Increasing the number of time steps on the tree
5.Which two statements are true (circle two)
爱情大魔咒英文版
(a)Delta is a measure of the volatility of an option凯利日记
(b)Delta is a measure of the position in the underlying stock that should be taken
to hedge an option
劝说英文(c)Delta is estimated by considering two adjacent nodes on a tree at a certain time
and calculating the difference in option prices divided by the difference in the
stock prices
(d)The delta of a put option is positive
