00:01
Hello everyone, so first part of the question says that if the fund manager buys trade european put options how much would the insurance cost so the fund option is worth $300 ,000 times the value of the index when the value of the portfolio falls by 5 % to $342 million the value of the s &p 500 also falls by 5 % to $1140 million.
00:42
Now the fund manager therefore requires european put options on 300 ,000 times the s &p 500 with exercise price $1140 million.
00:57
So s0 is equals to 1200, k is equals to 1140, r is equals to 0 .06 and sigma is equals to 0 .30, t is 0 .50 and q is 0 .03.
01:32
Hence d1 is equals to 1200 divided by 1140 plus 0 .06 minus 0 .03 to the power 2 divided by 2 multiplied by 0 .5 whole divided by 0 .3 under root 0 .5 which on solving gives 0 .4186.
02:08
D2 is equals to d1 minus 0 .3 under root 0 .5 which gives 0 .2064.
02:20
Now n d1 is equals to 0 .6622.
02:29
N d2 is equals to 0 .5818.
02:34
N minus d1 is equals to 0 .3378.
02:43
N minus d2 is equals to 0 .4182...