A market has two stocks S1 and S2. Both S1 and S2 are valued at $1 per unit today andcan be worth either $2 or $0.5 per unit after one year. Assume that money M valued at $1per unit today does not change its value during that time.(a) Suppose a convertible bond B that pays either $2 when S1 = $2 or $1 whenS1 = $0.5 in a year is also traded in the market.(i) Calculate the portfolio (S1;M) that replicates B using matrix inverses.(ii) Calculate the price of convertible bond B.(b) Suppose an option O1 that pays $1 when both S1 = S2 = $2 (and 0 otherwise)is traded in the market and is worth $0.125. Also suppose option O2 that pays $1 whenS1 = $2 but S2 = $0.5 (and 0 otherwise) is traded in the market as well.(i) Calculate the portfolio (S1;S2;M;O1) that replicates O2 using row reduction.(ii) Calculate the price of option O2.
“I’m trying to write my paper and I’m stuck. Can you help me?”
Yes, we can help you achieve academic success without the uncessary stress of deadlines.
Our reliable essay writing service is a great opportunity for you to save your time and receive the best paper ever.
Matrix inverses
Plagiarism-free and delivered on time!
We are passionate about delivering quality essays.
Our writers know how to write on any topic and subject area while meeting all of your specific requirements.
Unlike most other services, we will do a free revision if you need us to make corrections even after delivery.