Questions from Business Statistics

Q: Suppose you sell a call option contract on April live cattle futures

Suppose you sell a call option contract on April live cattle futures with a strike price of 130 cents per pound. Each contract is for the delivery of 40,000 pounds. What happens if the contract is exe...

Q: Explain how a stop-loss trading rule can be implemented for

Explain how a stop-loss trading rule can be implemented for the writer of an out-of-themoney call option. Why does it provide a relatively poor hedge?

Q: What is the delta of a short position in 1,000

What is the delta of a short position in 1,000 European call options on silver futures? The options mature in 8 months, and the futures contract underlying the option matures in 9 months. The current...

Q: The price of an American call on a non-dividend-

The price of an American call on a non-dividend-paying stock is $4. The stock price is $31, the strike price is $30, and the expiration date is in 3 months. The risk-free interest rate is 8%. Derive u...

Q: In Problem 19.10, what initial position in 9-

In Problem 19.10, what initial position in 9-month silver futures is necessary for delta hedging? If silver itself is used, what is the initial position? If 1-year silver futures are used, what is the...

Q: A financial institution has just sold 1,000 7-month

A financial institution has just sold 1,000 7-month European call options on the Japanese yen. Suppose that the spot exchange rate is 0.80 cent per yen, the exercise price is 0.81 cent per yen, the ri...

Q: Under what circumstances is it possible to make a European option on

Under what circumstances is it possible to make a European option on a stock index both gamma neutral and vega neutral by adding a position in one other European option?

Q: A fund manager has a well-diversified portfolio that mirrors the

A fund manager has a well-diversified portfolio that mirrors the performance of the S&P 500 and is worth $360 million. The value of the S&P 500 is 1,200, and the portfolio manager would like to buy in...

Q: Repeat Problem 19.16 on the assumption that the portfolio has

Repeat Problem 19.16 on the assumption that the portfolio has a beta of 1.5. Assume that the dividend yield on the portfolio is 4% per annum. Data from Problem 19.16: A fund manager has a well-diversi...

Q: What does it mean to assert that the delta of a call

What does it mean to assert that the delta of a call option is 0.7? How can a short position in 1,000 options be made delta neutral when the delta of each option is 0.7?