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Title: Explain how to synthetically create an equity linked CD Post by: jiangqinshan on Oct 15, 2017 Explain how to synthetically create an equity linked CD by using a forward contract on the S&P index and a put option instead of a call option.
a. The index is 1300, the dividend yield is 1.5% continuously compounded, the riskless rate is 6% continuously compounded. The maturity is 5.5 years; the volatility is 30%. The participation rate for the CD is 70%. The coupon rate for the CD is zero. After 5.5 years the payout of the CD is therefore: S0 + 0.7(max(S5.5-S0)). Value this CD b. Provide the exact replicating position that involves put options and riskless bonds rather than call options.( Hint: Use put call parity but please do not ignore dividends) Title: Re: Explain how to synthetically create an equity linked CD Post by: bio_man on Oct 16, 2017 I wish I could help you with this, but I don't know which formulas to use. If you can provide me with some background information, such as formulas, I can pretty much solved anything.
Please let me know -- and the same applies to your other topic https://biology-forums.com/index.php?topic=783733.msg2226560#new |