MATH 534 Final: MATH 537 UMass Amherst finalF14soln
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Instructions: show all your work for full credit, and box your answers when appropriate. The price of the put (today) is 100. Let s1 denote the price of aapl in one year. Solution: the graph of the payo is y = s1 + max(600 s1, 0) = max(s1, 600). The graph of the pro t is the graph of the payo , shifted down by the future value of the cost, f v (cost) = (100 + 500)e0. 05 1. S1 > 600e0. 05 = 630. 73: the risk-free rate is 3%. European put on aapl with strike price 525 is 45. Give the best (that one can determine from the information) upper and lower bound for the price today of the. 4-month aapl european call with strike price 500. Solution: let pk, ck denote the price of euro put, euro call with strike k. we have the following relations: p525 p500, c500 c525, ck = pk + s0 ke rt .
