Financial DerivativesTU Board 2023
The current price of stock is Rs 100, exercise price is Rs 100, risk free rate 5%, stock pays Re 1 dividend in the next instant, and maturity period of 1 year. The lower bound of the call is Rs 3.76.
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Value of a financial derivative depends upon value of underlying asset.TU Board 20241In the money put option has positive intrinsic value.TU Board 20241There is direct / positive relationship between value of call option with time to expiration.TU Board 20241When pricing a put with the binomial model, the up and down probabilities are reversed.TU Board 20241Both put option buyer and seller have the potential for unlimited losses.TU Board 20241If the initial margin is Rs 5,000, the maintenance margin is Rs 3,500 and your margin balance is Rs 4,000, you will receive margin call of Rs 500.TU Board 20241