1. What is the difference between an American call and a European call?
2. What is the unit of rf in the Black-Scholes-Merton option model?
3. If we are given the annual rate of 3.4 percent, compounded semi-annually, what will the value of rf be that we should use for the Black-Scholes-Merton option model ?
4. How do we use options to hedge?
5. How do we treat predetermined cash dividends to price a European call?
6. Why is an American call worth more than a European call?
7. Assume you are a mutual fund manager and your portfolio's β is strongly correlated with the market. You are worried about the short-term fall in the market. What you could do to protect your portfolio?
8. The current price of stock A is $38.5 and the strike prices for ...