Questions from Business Statistics

Q: Explain why American call options on futures could be exercised early when

Explain why American call options on futures could be exercised early when call options on the spot are not. Assume that there are no dividends.

Q: Explain why the Black option on futures pricing model is simply a

Explain why the Black option on futures pricing model is simply a pricing model for options on instruments with a zero cost of carry.

Q: Rework the last problem assuming that the index was at 388.

Rework the last problem assuming that the index was at 388.14 at expiration. Determine the profit from the arbitrage trade and express it in terms of the profit from the spot and futures sides of the...

Q: Assume that there is a forward market for a commodity. The

Assume that there is a forward market for a commodity. The forward price of the commodity is $45. The contract expires in one year. The risk-free rate is 10 percent. Now six months later, the spot pri...

Q: A major bread maker is planning to purchase wheat in the near

A major bread maker is planning to purchase wheat in the near future. Identify and explain the appropriate hedging strategy.

Q: A call option on the euro expiring in six months has an

A call option on the euro expiring in six months has an exercise price of $1.00 and is priced at $0.0385. Construct a simple long position in the call.

Q: On July 1, a portfolio manager holds $1 million face

On July 1, a portfolio manager holds $1 million face value of Treasury bonds, the 11 l/4s maturing in about 29 years. The price is 107 14/32. The bond will need to be sold on August 30. The manager is...

Q: Suppose you are concerned about your firm’s jet fuel exposure. Further

Suppose you are concerned about your firm’s jet fuel exposure. Further, your analysis suggests the best futures contract to hedge jet fuel is unleaded gasoline. The fuel volatility (standard deviation...

Q: Based on the jet fuel exposure information in the previous problem,

Based on the jet fuel exposure information in the previous problem, calculate the hedging effectiveness. Explain how to interpret this number.

Q: The price sensitivity hedge ratio, including yield beta, was shown

The price sensitivity hedge ratio, including yield beta, was shown in this chapter to be Discuss how changing each of the five input parameters will influence the hedge ratio (assume that all input pa...