Spreads. A spread is a combination of a put and a call with different exercise prices.
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Pay-off for a spread buyer
Pay-off for a spread seller
Pay-off for a spread combining long position and short position on a call
Pay-off to a butterfly spread position on a call
The value of the options will lie between Max and Min lines
Volatility of the share and the value of a call option
Option Delta = Difference in option Values / Difference in Share Prices.
PV of Portfolio = Value of Portfolio at end of year / Discount rate
Value of a call option = No. of Shares (D) Spot
Price – PV of Portfolio
C0 = the current value of call option
S0 = the current market value of the share
E = the exercise price
e = 2.7183, the exponential constant
rf = the risk-free rate of interest
t = the time to expiration (in years)
N(d1) = the cumulative normal probability density
ln = the natural logarithm;
σ= the standard deviation;
σ2 = variance of the continuously
compounded annual return on the share.
The market value of debt is : Market value of debt= Value of firm – value of equity
= 250 – 200 = Rs 50 crore.