Questions from Business Statistics

Q: Assume a standard deviation of 8 percent and use the Black model

Assume a standard deviation of 8 percent and use the Black model to determine whether the call option in problem 17 is correctly priced. If not, suggest a riskless hedge strategy.

Q: You are the manager of a bond portfolio of $10 million

You are the manager of a bond portfolio of $10 million face value of bonds worth $9,448,456. The portfolio has a yield of 12.25 percent and a duration of 8.33. You plan to liquidate the portfolio in s...

Q: In each case examined in this chapter and in the preceding problems

In each case examined in this chapter and in the preceding problems, we did not account for the interest on funds invested. One useful way to observe the effect of interest is to look at a conversion...

Q: Identify and define three versions of put-call parity.

Identify and define three versions of put-call parity.

Q: A bank is offering an interest rate call with an expiration of

A bank is offering an interest rate call with an expiration of 45 days. The call pays off based on 180-day LIBOR. The volatility of forward rates is 17 percent. The 45-day forward rate for 180-day LIB...

Q: Assume the 30-day LIBOR is 5 percent and the 120

Assume the 30-day LIBOR is 5 percent and the 120-day LIBOR is also 5 percent. This implies a continuously compounded 90-day forward rate of 5.0172 percent. Verify this result and explain what happens...

Q: Assume the 30-day LIBOR is 5 percent and the 120

Assume the 30-day LIBOR is 5 percent and the 120-day LIBOR is 6 percent. This implies a continuously compounded 90-day forward rate of 6.3448 percent. Verify this result and explain what happens to th...

Q: Use the Black model to determine a fair price for an interest

Use the Black model to determine a fair price for an interest rate put that expires in 74 days. The forward rate is 9.79 percent, and the exercise rate is 10 percent. The appropriate risk-free rate is...

Q: Using the information in the previous problem, calculate the price of

Using the information in the previous problem, calculate the price of the put described in problem 17, using the Black model for pricing puts.

Q: One way to create a bull spread positions is by purchasing a

One way to create a bull spread positions is by purchasing a low strike call option and selling a high strike call option. Identify a strategy with put options that creates a similar bull spread shape...