can you answer in 2 hours?? – Business & Finance 2023

FIN 410 Fall 2015 HW #2

1) Real Options Part 1

The Milwaukee Brewers (a professional baseball team) recently announced a new promotion which allowed fans to pay $1,000 for a pack of 10 “Timeless Tickets”, each of which was good for admission to one game at any time in the team’s future (including playoff games). See: http://espn.go.com/mlb/story/_/id/12167650/milwaukee-brewers-offer-less-tickets. For this question, think about a “Timeless Ticket” as a financial option.

1. a)  Is the “Timeless Ticket” a call or a put option? Is it American or European? Are the Brewers buying or writing the option? Explain why. (1 point)

2. b)  What is the underlying on the option? What is the contract size? What is the strike? What is the premium per unit? What is the maturity? (1 point)

3. c)  For a stock option with this strike price, what should the option premium be equal to? Why? What should the option delta be? Why? (2 points)

4. d)  For a stock option of this type (i.e., call or put), as the time to maturity approaches infinity, what should the option premium converge to? Why? What should the option theta converge to as the time to maturity approaches infinity? Why? (2 points)

5. e)  The Brewers are a “small–market” team, meaning that they usually have less money available to spend on players, scouts, executives, and so on when compared to “big–market” teams like the New York Yankees. With this in mind, can you explain, in terms of option contracts, why a “small–market” team like the Brewers might be especially motivated to offer the “Timeless Tickets” promotion? (1 point)

2) Real Options Part 2

Now imagine that the Brewers structured the promotion in (1) slightly differently, and offered “Timeless Tickets” that granted the buyer the right, but not the obligation, to buy a ticket to any one regular-season game in the team’s future for $100. We’re going to figure out a fair price for this option in this question.

To start, download the Excel data set “Brewers Tickets Sim 410” from Angel. This data set contains (simulated) data for the price of an average ticket to each regular-season Milwaukee Brewers game from 2006 to 2015. (There are 162 games in a Major League Baseball season.)

After you do the calculations below, you’ll upload this data set to Angel as part of your HW2 submission.

In order to calculate an option price, we’ll need the following inputs (ignore dividends):