Homework Set 5
Math 456
Topics in Financial Mathematics
Prof. Wickerhauser
Read Chapters 9 and 10 of the textbook, "Binomial Models In Finance" by
John van der Hoek and Robert J. Elliott
NOTE: When asked to produce a spreadsheet, you may instead implement
the model in Octave or another system. For full credit you must
translate the algorithm into a computer program and produce output
from several examples. Include your code so that the grader can see
and reproduce your work.
Do the following exercises from the textbook Chapter 9.6, p.126:
Exercise 9.3. Derive Eq.9.1 from the Black-Scholes formula. You may
use the Call-Put Parity formula to derive Eq.9.2. Likewise,
derive Eq.9.8, Eq.9.9, Eq.9.13, Eq.9.14, Eq.9.18, and Eq.9.19.
NOTE: the definitions of d1 and d2 are on p.248 of the
textbook, along with the Black-Scholes formula for
European-style Call options, Eq.A.17. Additional references
on Black-Scholes formulas are linked from the class website.
Exercise 9.4. Either create a spreadsheet or use Octave programs.
Do the following exercises from the textbook Chapter 10.4, p.134:
Exercise 10.10
Exercise 10.11
Exercise 10.12
Exercise 10.13
Exercise 10.14