Skip to Main Content
Derivatives and Risk Management, 1st Edition
book

Derivatives and Risk Management, 1st Edition

by Sundaram Janakiramanan
May 2024
Intermediate to advanced content levelIntermediate to advanced
542 pages
27h 26m
English
Pearson India
Content preview from Derivatives and Risk Management, 1st Edition
376 Derivatives and Risk Management
First, calculate the risk-neutral probabilities p and (1 – p).
p =
e d
u d
e
rT
=
=
0 06 90 365
0 97
1 08 0 97
0 4082
. ( / )
.
. .
.
´
(1 – p) =
u e
u d
e
rT
=
=
1 08
1 08 0 97
0 5918
0 06 90 365
.
. .
.
. ( / )´
C
Tu
= Max [0, (S
Tu
S
X
)] = Max [0, (1,200 × 1.08 – 1,240)] = Max [0, (1,296 – 1,240)] = INR 56
C
Td
= Max [0, (S
Td
S
X
)] = Max [0, (1,200 × 0.97 – 1,240)] = Max [0, (1,164 – 1,240)] = INR 0
us, the expected value of the call at time 1:
Expected value at time 1 = 0.4082 × 56 + 0.5918 × 0 = INR 22.86
Discounting this expected terminal value at 6% over 90 days gives:
C
T–1
= C
T
e
rT
= 22.86 × e
–0.06×(90/365)
= INR 22.52 ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
and much more.
Start your free trial

You might also like

Derivatives and Risk Management

Derivatives and Risk Management

Madhumathi Madhumathi, Ranganatham Ranganatham
Derivatives and Risk Management

Derivatives and Risk Management

Sundaram Janakiramanan

Publisher Resources

ISBN: 9781299447547Publisher Website