FNCE90011 Derivative Securities Topic 1 Fundamentals Topic Outline Basic Concepts Option Payoff and Profit Diagrams Miscellaneous Complicated Payoffs Appendix: Market Structure References Hull (8th edition) Chapters 1‚ 4.2‚ 5.2‚ 9‚ 11 Hull (7th edition) Chapters 1‚ 4.2‚ 5.2‚ 9‚ 11 Hull (6th edition) Chapters 1‚ 4.2‚ 5.2‚ 8‚ 10 Copyright © John C. Handley 2012. 1. BASIC CONCEPTS What is a derivative ? A derivative is an asset/security whose value is completely determined by the
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000 “at-the-money” employee share options on January 1‚ 2006. The awards have a grant-date fair value of $6‚ vest at the end of the third year of service (cliff-vesting)‚ and have an exercise price of $21. Subsequent to the awards being granted‚ the stock price has fallen significantly. On January 1‚ 2008‚ Murray decreased the exercise price on the stock options to $12. This downward adjustment to the exercise price was made in order to ensure that the options continue to provide intended motivation
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1. Ignoring taxation and other constraints‚ Ms. Jameson is better off taking the options. The stock currently trading at $18.75 and the exercise price is $35. This may seem drastically far away. However‚ 5 year T-Bill rates are currently at 6.02%. Combined with a current stock volatility of approximately 42%‚ this allows each option to be valued at approximately $4.93. At this amount‚ Ms. Jameson’s options would be presently worth $14‚790 were she to sell them. Where she to hold them instead
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Problem 1.8. Suppose you own 5‚000 shares that are worth $25 each. How can put options be used to provide you with insurance against a decline in the value of your holding over the next four months? You should buy 50 put option contracts (each on 100 shares) with a strike price of $25 and an expiration date in four months. If at the end of four months the stock price proves to be less than $25‚ you can exercise the options and sell the shares for $25 each. Problem 1.9. A stock when it is first
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c. P – X d. P + S0 – Xe-rt e. none of the above 2. What is the lowest possible value of a European put? a. Max(0‚ X – S0) b. Xe-rt c. Max[0‚ S0 – Xe-rt ) d. Max[0‚ Xe-rt – S0)] e. none of the above The following quotes were observed for options on a given stock on November 1 of a given year. These are American calls except where indicated. Use the information to answer questions 3 and 4. Calls Puts Strike Nov Dec Jan Nov Dec Jan 105 8.40 10 11.50 5.30 1.30 2.00 110
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compounded)‚ bought call option of price AUD705.2 for the capital protection under S&P 200 index of 4‚637.893 and written call option of price AUD40.9 for the return cap level over S&P 200 index of 7‚884.418. The return is based on 7 months’ arithmetic average index. In order to create the similar option payoff‚ instead of using American or European Options‚ a similar form of Asian options could be used to determine the maturity payoffs of the options. And this type of options can have benefits
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Econ 252 Spring 2011 Final Exam Econ 252 - Financial Markets Professor Robert Shiller Spring 2011 Professor Robert Shiller Final Exam Instructions: • • • • • • • • The exam consists of a total of twelve pages including this coversheet. There are two parts to this exam. In Part I‚ answer any sixteen of the twenty questions‚ five minutes each. The total for Part I is 80 minutes. In Part II‚ answer all seven questions. The total for Part II is 70 minutes.
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FINS2624 PORTFOLIO MANAGEMENT Week 6 CAPM: The covariance of an assets returns with the market and the required return of the asset. Assumptions: * Investors are price takers * Investors have identical investment horizons * Perfect capital markets * Investors are rational mean-variance optimizers β: Measures how much risk an asset contributes in the market portfolio. * β > 1 asset contributes more risk than the average asset * β < 1 asset contributes less risk
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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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has also collected data on two specific options as well: Strike rate Premium 90-day put option on £ $1.750/£ 1.5% 90-day put option on £ $1.710/£ 1.0% [pic] Annex A: Dayton Hedging Table Based on the exchange rates and interest rates‚ the transaction exposure hedging strategy Dayton’s might considers: Forward Hedge or 90-Day put option on £ of $1.750/£. Very importantly to obtain one of the hedging options‚ Dayton’s has to understand the risk management
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