Our company “Saint Derivatives” offers a wide range of financial derivative instruments.
1. Our first customer is investor from China who invested large sum of money into KKB’s stocks. He decided to hedge his portfolio and contacted us. We offered him European put option on KKB’s stocks which matures in 9 months with the strike price of $13,1 per GDR. To estimate how much we are to charge for put option, we used data taken from the website of London Stock Exchange (www.londonstockexchange.com), as KKB’s GDR is quoted on this stock exchange. Latest price of the GDR is $16,29 (on 18 April,2008). To calculate volatility we used historical prices of the stock in the interval from 1 January until 18 April, and it is equal to 47,98%. Having all these figures we used Black-Scholes formula and found out the price of put option, which is $0,79. We also checked it on DerivaGem program.
1.
X 13,1 Strike Price
S 16,29 Stock Price
T 0,75 Time
r 2,64% 9-Month LIBOR
sigma 47,98% Volatility
d1 0,779909502 -0,779909502
d2 0,364390513 -0,364390513
N(d1) 0,782277927
N(d2) 0,642216791
N(-d2) 0,357783209
N(-d1) ...