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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ADVANCED CORPORATE FINANCE BELZE Loïc Financial Options Lecture 7 – Chapter 20 ADVANCED CORPORATE FINANCE – BELZE Loïc – Adapted from 2011 Berk & DeMarzo Pearson Education 7 - 20 - 1 www.em-lyon.com © EMLYON School EMLYON Business 2011 Chapter Outline • • • • • • 20.1 – Option Basics 20.2 – Option Payoffs at Expiration 20.3 – Put-Call Parity 20.4 – Factors Affecting Option Prices 20.5 – Exercising Options Early 20.6 – Options and Corporate Finance ADVANCED CORPORATE
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elevator (further from the bookstore‚ closer to the Roundhouse)‚ and go straight out the back through the glass doors (left of the elevator). On the left-hand side you’ll see the Banking and Finance assignment boxes. Let’s use Assignment box 2. I’ll put up a sign closer to the due date. Or‚ you can hand them directly to me‚ or bring them to my office during my consultation hours. Please do not disturb our administrative staff. Introduction The purpose of this assignment is to have you solve a number
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Fin 4910/6990 Further Questions Problem 7.19 (a) Company A has been offered the rates shown in Table 7.3. It can borrow for three years at 6.45%. What floating rate can it swap this fixed rate into? (b) Company B has been offered the rates shown in Table 7.3. It can borrow for 5 years at LIBOR plus 75 basis points. What fixed rate can it swap this floating rate into? (a) Company A can pay LIBOR and receive 6.21% for three years. It can therefore exchange a loan at 6.45% into a loan at LIBOR plus
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payment will calculated as 38.88*P1.5. This final payment is like selling a put option to ABN AMRO bank with a strike price of $25.72 and a payoff of Min (1000‚ 38.88* P1.5). Hence the investors are actually being offered a bond and a short put option. The RES value should be the difference in the value of the bond and the value of the put option. Given the price of the RES‚ we can calculate the fair value of the put option and the bond to see whether ABN AMRO bank has made a profit from it. Assuming
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between Puts and Calls Itô Refresher Appendix* Introduction Markus Leippold University of Zurich Chris Bardgett University of Zurich Elise Gourier University of Zurich Financial Engineering – September‚ 2012 Introduction 1 / 97 Historical Degression Setting the Stage No-Arbitrage Bounds Relations between Puts and Calls Itô Refresher Appendix* Outline 1 Historical Degression Setting the Stage No-Arbitrage Bounds Relations between Puts and Calls
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following table: Price of Asset in 6 Agreed Forward Price months Payoff to Short Forward 40 10 45 50 5 50 50 0 55 50 -5 60 (b) The payoff 50 50 -10 to a purchased put option at expiration is: Payoff to long put option = max [0‚ Strike price - Spot price at expiration]
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Homework Solution2010Fall second half Ch14 18. There are several ways to approach this problem‚ but all (when done correctly!) should give approximately the same answer. We have chosen to use the regression analysis function of an electronic spreadsheet program to calculate the alpha and beta for each security. The regressions are in the following form: Security return = alpha + (beta ( market return) + error term The results are: | |Alpha
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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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Session 3: Case Study Covered Call and Butterfly Strategies B. Butterfly strategy 1. What is the Butterfly strategy? * A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration but three different strike prices to create a range of prices the strategy can profit from. 2. What are its advantages and disadvantages? * Large profit percentage due to low cost involve in executing the position Limited risk
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