Questions from Business Statistics

Q: The strike price of a futures option is 550 cents, the

The strike price of a futures option is 550 cents, the risk-free interest rate is 3%, the volatility of the futures price is 20%, and the time to maturity of the option is 9 months. The futures price...

Q: A financial institution has the following portfolio of over-the-

A financial institution has the following portfolio of over-the-counter options on sterling: A traded option is available with a delta of 0.6, a gamma of 1.5, and a vega of 0.8. (a) What position in t...

Q: Consider a 1-year European call option on a stock when

Consider a 1-year European call option on a stock when the stock price is $30, the strike price is $30, the risk-free rate is 5%, and the volatility is 25% per annum. Use the DerivaGem software to cal...

Q: Explain the impact of an increase in default correlation on the risks

Explain the impact of an increase in default correlation on the risks of the senior tranche of an ABS. What is its impact on the risks of the equity tranche?

Q: A deposit instrument offered by a bank guarantees that investors will receive

A deposit instrument offered by a bank guarantees that investors will receive a return during a 6-month period that is the greater of (a) zero and (b) 40% of the return provided by a market index. An...

Q: The formula for the price c of a European call futures option

The formula for the price c of a European call futures option in terms of the futures price F0 is given in Chapter 18 as and K, r, T, and are the strike price, interest rate, time to maturity,...

Q: Use the DerivaGem Application Builder functions to reproduce Table 19.2

Use the DerivaGem Application Builder functions to reproduce Table 19.2. (In Table 19.2 the stock position is rounded to the nearest 100 shares.) Calculate the gamma and theta of the position each wee...

Q: A company’s stock is selling for $4. The company has

A company’s stock is selling for $4. The company has no outstanding debt. Analysts consider the liquidation value of the company to be at least $300,000 and there are 100,000 shares outstanding. What...

Q: A company is currently awaiting the outcome of a major lawsuit.

A company is currently awaiting the outcome of a major lawsuit. This is expected to be known within 1 month. The stock price is currently $20. If the outcome is positive, the stock price is expected t...

Q: A futures price is currently $40. The risk-free

A futures price is currently $40. The risk-free interest rate is 5%. Some news is expected tomorrow that will cause the volatility over the next 3 months to be either 10% or 30%. There is a 60% chance...