Basic Derivative Problems 1. (Answers are in red) Select the family member who is offering the most diversification to the rest of the family. A. Dad works for General Motors C. Daughter works for Jiffy Lube 2. Assume that you purchase 100 shares of Jiffy‚ Inc. common stock at the bid-ask prices of $32.00-$32.50. When you sell the bid-ask prices are $32.50-$33.00. If you pay a commission rate of 0.5%‚ what is your profit or loss? A. $0 3. D. $32.50 loss B. $16.25 loss C.
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Chapter 7 & Options 1. Assume that you sold a 100 call for $10. Calculate your profit/loss per share if the future stock prices are $80‚ $90‚ $100‚ $110. What type of investor (bullish or bearish) sell a call? Why? 2. Assume that you bought a 110 put for $11. Calculate your profit/loss per share if the future stock prices are $ $90‚ $100‚ $110‚ $120. What type of investor (bullish or bearish) buy a put? Why? 3. If a stock splits 5 for 3 how would the exchange adjust a put option contract
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......................... 5 2. FUTURES .................................................................................................................... 11 3. OPTIONS..................................................................................................................... 26 4. TRADING STRATEGIES USING FUTURES AND OPTIONS ........................... 40 5. RISK MANAGEMENT IN DERIVATIVES............................................................ 50 6. SETTLEMENT OF DERIVATIVES .....
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EMPLOYEE STOCK OPTION PLANS Employee Stock Option Plans (ESOPs) & Employee Stock Purchase Schemes (ESPSs) are employee benefit plans‚ which makes the employee of the company owners of stock in that company. Stock options are the instruments that are offered to employees‚ allowing them to buy a certain number of shares in the company at a specific price. This price could either be lower than the current market-price of scrip-in which case their gains are immediate-or the same‚ whereupon future
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Assume that one‑year put options on Singapore dollars are available‚ with an exercise price of $.63 and a premium of $.04 per unit. One‑year call options on Singapore dollars are available with an exercise price of $.60 and a premium of $.03 per unit. Assume the following money market rates: U.S. Singapore Deposit rate 8% 5% Borrowing rate 9 6 Given this information‚ determine whether a forward hedge‚ money market hedge‚ or a currency options hedge would be most appropriate
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Mathematical Techniques in Finance‚ 2009) Q2. Hedging Problem Solution: a. Returns matrix of basis assets is The payoff the digital put option is Price of return S = 1‚ and Therefore‚ Since The hedge which minimizes the expected squared hedging error is By Matlab code: =[1.3*sqrt(0.3)‚1.05*sqrt(0.3);1.1*sqrt(0.5)‚1.05*sqrt(0.5);0.8*sqrt(0.2)‚1.05*sqrt(0.2)] =[0;0;sqrt(0
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of financial options‚ you have been asked to prepare a brief report that firm’s executives can use to gain a cursory understanding of the topic. To begin‚ you gathered some outside materials on the subject and used these materials to draft a list of pertinent questions that need to be answered. In fact‚ one possible approach to the report is to use a question-and-answer format. Now that the questions have been drafted‚ you have to develop the answers. a. What is a financial option? What is the
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However‚ the hedging performances were kinds of efficient only in the end period of each month‚ especially‚ in the second time period in P/L chart. Answer for question B Two hedging strategies used in the trading scenario are protective put and covered call. A protective put strategy is a combination of long stock and long put. The main objective of a protective put strategy is to shield the effects of adverse movements of the prices of shares and lower the downside risk. Buying a protective put assures
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E09-G11 Mridul Arora‚ Florent Bernard‚ Jacqueline Kwok‚ Pu Wang E09-G11 Sally Jameson Case 1. How much is the option compensation package worth With the 5-year T-Bill yield‚ we can calculate the rf rate‚ compounded continuously‚ input for the BlackScholes model. e5r = 1 + (5-year T-Bill yield) e5r = 1.0602 r = 0.0117 Exercise price X 35 Given by case text Current stock price Volatility of stock returns Time to maturity S ơ Ƭ 18.75 43% 5 r 6.02% 1.17% Given by case text Approximation given
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approved by the FDA‚ would you recommend that Cephalon follows a strategy of making an immediate onetime payment to purchase all of the rights to this drug rather than making a stream of payments under the milestone payment/interim license/purchase option agreement that was in place? Explain your reasoning. Answer: If Myotrophin is approved‚ I will recommend Cephalon to make a onetime payment to purchase the rights to this drug. First of all‚ we want to find out if we are capable to raise this large
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