MATH 534 Final: MATH 537 UMass Amherst finalS17soln
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Instructions: show all your work for full credit, and box your answers when appropriate. Unless otherwise noted, the risk free rate is per annum with continuous compounding, there are no arbitrage opportunities, and stocks do not pay dividends. Round answers to the nearest cent (sh. 01): the risk-free rate is 3%. Solution: the only (known) arbitrage opportunity involves the puts with strikes 140 and 150. Long the 150 put , short the 140 put. Payo is non-negative (could be 0) and so pro t is (at least) 10 6 = 4 from today"s premiums. Most students got this problem wrong, with some trying to use put-call parity to deduce s0 : 12 = c150 + 150e 0. 03 p150 + s0 3e 0. 03 . The spot price of net ix (nflx) is . Construct a one-time-step binomial tree for nflx using the cox-ross- Compute today"s price of american put on nflx with strike price , expiring in 6-months.
