Questions from Business Statistics

Q: The correlation between a company’s gross revenue and the market index is

The correlation between a company’s gross revenue and the market index is 0.2. The excess return of the market over the risk-free rate is 6% and the volatility of the market index is 18%. What is the...

Q: A company can buy an option for the delivery of 1 million

A company can buy an option for the delivery of 1 million units of a commodity in 3 years at $25 per unit. The 3-year futures price is $24. The risk-free interest rate is 5% per annum with continuous...

Q: What is the formula relating the payoff on a CDS to the

What is the formula relating the payoff on a CDS to the notional principal and the recovery rate?

Q: Explain the difference between a cash CDO and a synthetic CDO.

Explain the difference between a cash CDO and a synthetic CDO.

Q: Suppose that a financial institution has entered into a swap dependent on

Suppose that a financial institution has entered into a swap dependent on the sterling interest rate with counterparty X and an exactly offsetting swap with counterparty Y. Which of the following stat...

Q: A company enters into a total return swap where it receives the

A company enters into a total return swap where it receives the return on a corporate bond paying a coupon of 5% and pays LIBOR. Explain the difference between this and a regular swap where 5% is exch...

Q: Why does the credit exposure on a matched pair of forward contracts

Why does the credit exposure on a matched pair of forward contracts resemble a straddle?

Q: What is the difference between a total return swap and an asset

What is the difference between a total return swap and an asset swap?

Q: Show that under Merton’s model in Section 24.6 the credit

Show that under Merton’s model in Section 24.6 the credit spread on a T-year zero coupon bond is
, where
.

Q: Explain carefully the distinction between real-world and risk-neutral

Explain carefully the distinction between real-world and risk-neutral default probabilities. Which is higher? A bank enters into a credit derivative where it agrees to pay $100 at the end of 1 year if...