Questions from Business Statistics

Q: What is the difference between the exponentially weighted moving average model and

What is the difference between the exponentially weighted moving average model and the GARCH(1,1) model for updating volatilities?

Q: Suppose that the parameters in a GARCH (1,1)

Suppose that the parameters in a GARCH (1,1) model are
,
, and
. (a) What is the long-run average volatility? (b) If the current volatility is 1.5% per day, what is your estimate of the volatility...

Q: Modify Sample Application G in the DerivaGem Application Builder software to test

Modify Sample Application G in the DerivaGem Application Builder software to test the convergence of the price of the trinomial tree when it is used to price a 2-year call option on a 5-year bond with...

Q: Calculate the price of a cap on the 90-day LIBOR

Calculate the price of a cap on the 90-day LIBOR rate in 9 months’ time when the principal amount is $1,000. Use Black’s model with LIBOR discounting and the following information: (a) The quoted 9-mo...

Q: In Example 25.2, what is the tranche spread for

In Example 25.2, what is the tranche spread for the 9% to 12% tranche assuming a tranche correlation of 0.15? //

Q: The credit spreads for 1-, 2-, 3-, 4-,

The credit spreads for 1-, 2-, 3-, 4-, and 5-year zero-coupon bonds are 50, 60, 70, 80, and 87 basis points, respectively. The recovery rate is 35%. Estimate the average hazard rate each year.

Q: Explain the difference between risk-neutral and real-world default

Explain the difference between risk-neutral and real-world default probabilities. Which should be used for valuing CDSs?

Q: Show that, if there is no recovery from the bond in

Show that, if there is no recovery from the bond in the event of default, a convertible bond can be valued by assuming that (a) both the expected return and discount rate are r+and (b) there is no...

Q: Explain why delta hedging is easier for Asian options than for regular

Explain why delta hedging is easier for Asian options than for regular options.

Q: Calculate the price of a 1-year European option to give

Calculate the price of a 1-year European option to give up 100 ounces of silver in exchange for 1 ounce of gold. The current prices of gold and silver are $1,520 and $16, respectively; the risk-free i...