112 學年度第一學期金融創新期末考

任選五題進行作答即可，並請詳述計算過程。
1. The spot USD-EUR exchange rate is USD1.24/EUR. Consider a one-month
(=0.083 years) put option on the EUR with a strike of USD1.25/EUR. Assume
that the volatility of the exchange rate is 12%, the one-month interest rate on the
USD is 3.1%, and the one-month interest rate on the EUR is 3.7%, both in
continuously compounded terms.
(a) What is the Black-Scholes price of the put?
(b) If you had written this put on EUR 10 million, what would you do to delta-
hedge your position.

2. Consider the binomial tree of Figure 1. Suppose that the per-period gross interest
rate is R = 1.02.
(a) Show that the price of a call on a put in this model with a strike of k = 4 and a
maturity of one period is 1.58, where the underlying put has a strike of 100 and a
maturity of 2 periods.
(b) Show that the delta of the call on the put in the binomial example is −0.202.
(Use the usual formula for a binomial delta.)
(c) Verify that a position consisting of a short position in the option and a short
position in 0.202 units of the stock is perfectly risk-less over the compound
option’s one-period life.
Figure 1: Stock Price Tree for Binomial Illustrations

3. (a) Price a chooser option using the Black-Scholes formula with the following
inputs: S = 100, K = 100, the maturity at which the option holder has to opt for a
call or a put is τ = 1 year, the final maturity of the option is T = 2 years, risk-free
rate r = 0.10, and dividends δ = 0.03.
 (b) Using the same input values as in the previous question, compute the value of
the straddle. Compare the price of the straddle with that of the chooser. Which is
greater? Why?

4. If you want to invest in the upside potential of a stock but are afraid of
overpaying for options that favor your view, suggest two ways in which you may
buy a single barrier option that implements your view more cheaply State your
reasons.

5. Companies A and B face the following interest rates (adjusted for the differential
impact of taxes):
A B
US Dollars (floating rate) LIBOR+0.5% LIBOR+1.0%
Canadian dollars (fixed rate) 5.0% 6.5%
Assume that A wants to borrow U.S. dollars at a floating rate of interest and B
wants to borrow Canadian dollars at a fixed rate of interest. A financial
institution is planning to arrange a swap and requires a 50-basis-point spread. If
the swap is equally attractive to A and B, what rates of interest will A and B end
up paying?

6. The LIBOR zero curve is flat at 5% (continuously compounded) out to 1.5 years.
Swap rates for 2- and 3-year semiannual pay swaps are 5.4% and 5.6%,
respectively. Estimate the LIBOR zero rates for maturities of 2.0, 2.5, and 3.0
years. (Assume that the 2.5-year swap rate is the average of the 2- and 3-year
swap rates and use LIBOR discounting.)