Assignment 1

(10 points Mandatory)

1. Using historical data you chose (monthly and 20 years period) and assuming that the strike price K is lower than current stock price by 2 dollars and risk free rate is 2%, find the following.

2. The value of a 3-year call option price written on those stocks. First, you need to compute the parameters of Black-Sholes model (T,SIG, ER…, etc). (3 points)

3. Use Garman–Kohlhagen model to compute a 2-year currency option prices. Assume the foreign risk free rate is 3%. Assume K is lower than Spot price by 2%. (3 points).

4. Compute the price for a zero coupon bond with a maturity of 3 years using the Vasicek model. (2 points).

5. Calculate the gross rate of return for ups and downs (u and d) for the stock you chose. (2 points)