StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Speculative markets, finance - Coursework Example

Cite this document
Summary
To capture this opportunity or profit, a speculator has to sell put A and purchase B. additionally, if the put that the speculator sells is exercised against…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.1% of users find it useful
Speculative markets, finance
Read Text Preview

Extract of sample "Speculative markets, finance"

Download file to see previous pages

Additionally,the speculator has not to worry of any loss since the American Puts have the opportunities to exercise immediately, therefore will gain access the different values of mispricing at any given time even at its expiration (Shockley 12-45). A synthetic Long call will be created when the long stock position is to be combined with long put of the same series. Therefore, to get the long synthetic stock position for the we assume that; Maximum profit = unlimited The total position of the two individuals will be profitable if the stock is less or greater than $45 or.

Such a scenario is known as strangle since the individuals hold two profitable positions to make profits under the bear and bull respectively. The value of a call option is adversely affected with the underlying stock price (in the case $ 390) is expected to drop by a rate equivalent to the value of the dividend on the ex-dividend date. However, as the above case is a call option the owner of the stock receives the cash dividends as of the ex-dividend date, hence the call option can be discounted by a figure as high as the dividend.

Therefore, the Amazon call option priced $ 390 and N (d1 ) denotes the probability or the expected value of receiving the Amazon call option at the expiration of option. Therefore, when S rise to $1000 the N (d1 ) will reduce accordingly indicating that as S grows the chances of exercising the option at the expiry date becomes small due to the increment of market volatility for that stock given as 25%. Under this case the probability if decrement of the amazon may be reflected as the 390/1000= 0.39. With the stock value dropping to $50, the present value of the contingent adjusted to the risk becomes less than the exercise price of the option during the expiration date, therefore, making the call value to be zero at its expiration date holding that the probabilities are normally distributed.

Ashley can create a bear spread via simultaneous

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Speculative markets, finance Coursework Example | Topics and Well Written Essays - 750 words”, n.d.)
Speculative markets, finance Coursework Example | Topics and Well Written Essays - 750 words. Retrieved from https://studentshare.org/finance-accounting/1693337-speculative-markets-finance
(Speculative Markets, Finance Coursework Example | Topics and Well Written Essays - 750 Words)
Speculative Markets, Finance Coursework Example | Topics and Well Written Essays - 750 Words. https://studentshare.org/finance-accounting/1693337-speculative-markets-finance.
“Speculative Markets, Finance Coursework Example | Topics and Well Written Essays - 750 Words”, n.d. https://studentshare.org/finance-accounting/1693337-speculative-markets-finance.
  • Cited: 0 times

CHECK THESE SAMPLES OF Speculative markets, finance

(Optional)

Student's Full Name: Professor's Name: The Housing Industry (finance, Money, and Banking) 07 June 2013 (estimated word count = 1,475) Introduction The latest data showed the United States economy is still limping along five years on since the start of the Great Recession in late 2007.... The United States of America is also facing various financial crises, such as in the retirement savings system which saw 401k savings accounts wiped out by the collapse of stock markets....
4 Pages (1000 words) Research Paper

The Economic Dragons Threatening Our World

The paper outlines what the nation can do to ward off speculation, minimize the potential for inflation and at the same time improve its standing in the world economy.... This case involves a rich East Asian nation with a pegged currency fixed to the US dollar for ten years.... hellip; Defining the problem is not as simple as it looks, more so since the case details are mum on crucial information like inflation rates, interest rates, the balance of trade, our buying power and demographic profile, employment and so on....
12 Pages (3000 words) Research Paper

Assessing the Different Types of Derivatives

Note: Wikipedia, the free encyclopedia, Derivative(finance)) Forward Contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time.... Allaz and Vila (1993) suggest that there is a strategic reason (in an imperfect competitive environment) for the existence of forward trading, that is, forward trading can be used even in a world without uncertainty In finance, a futures contract is a...
5 Pages (1250 words) Essay

Fair Value Accounting

?? Fair value accounting has raised several concerns with respect to… The belief by ASIC is that there is inadequate utilisation of information about markets and the disclosure of methods as well as assumptions (Parshall, 2009) This study is set out to discuss fair value accounting and more specifically determine its role in the credit crisis that rocked the world in 2008.... It will try to justify the statement that, “Fair value accounting only works in efficient, active and liquid markets....
6 Pages (1500 words) Essay

IF CURRENCY HEDGING IS SO BENEFICIAL, DO COMPANIES USE ALL HEDGING TECHNIQUES AVAILABLE

Foreign currency markets are considered to be very deep, relatively inexpensive and highly liquid where the fund managers are trying to manage their currency options in the foreign investment market.... When the question of currency hedging arises, it means the adoption of certain strategies that could reduce the impact the probable losses or additional burdens… The question that may next arise in the minds of alert readers would be the query that, given the fact that currency hedging is a well accepted and popular means of reducing the cts of risks and portent losses in foreign exchange transactions, why has the ambit and scope of hedging not also been extended to other forms of speculative business, or even if it has, why is this that it has met only with a limited degree of success and accomplishment?...
12 Pages (3000 words) Essay

Money & Banking - economics 321

According to the Minsky model, in fragile financial situation, hedge finance gradually transforms into speculative finance.... The system would, finally, give way to ponzi finance as cycles of borrowings ensue.... ?? During the feverish economic activity driven by speculative boom, a point is identified to emerge wherein prices start to level and uncertainty start to creep in....
2 Pages (500 words) Coursework

General Investment Discussion Posts

The type of management system that an individual chooses can determine the success or failure of the person making the investments.... hellip; One main advantage of passive strategy is that little work is required, and the fees charged are low.... This is because an investor does not have the need to pay portfolio managers and security analysts to Wieland (2010) denotes that a passive investment strategy has a rate of return of 7% per annum....
5 Pages (1250 words) Assignment

The Benefits of Using Derivatives

Often those exchange involves can be cash flow or another financial instruments, the value can vary during the term of contracts.... Forwards, futures, swaps, and option are the common example of… In this case however, it deals with the instruments which are described as commodity derivatives....
10 Pages (2500 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us