Questions from Business Statistics

Q: Suppose that $70 billion of equity assets are the subject of

Suppose that $70 billion of equity assets are the subject of portfolio insurance schemes. Assume that the schemes are designed to provide insurance against the value of the assets declining by more th...

Q: A bank’s position in options on the dollar/euro exchange rate

A bank’s position in options on the dollar/euro exchange rate has a delta of 30,000 and a gamma of
. Explain how these numbers can be interpreted. The exchange rate (dollars per euro) is 0.90. What p...

Q: What does it mean to assert that the theta of an option

What does it mean to assert that the theta of an option position is 0:1 when time is measured in years? If a trader feels that neither a stock price nor its implied volatility will change, what type o...

Q: What is meant by the gamma of an option position? What

What is meant by the gamma of an option position? What are the risks in the situation where the gamma of a position is highly negative and the delta is zero?

Q: A stock price is $40. A 6-month European

A stock price is $40. A 6-month European call option on the stock with a strike price of $30 has an implied volatility of 35%. A 6-month European call option on the stock with a strike price of $50 ha...

Q: ‘‘The procedure for creating an option position synthetically is the reverse

‘‘The procedure for creating an option position synthetically is the reverse of the procedure for hedging the option position.’’ Explain this statement.

Q: Why did portfolio insurance not work well on October 19, 1987

Why did portfolio insurance not work well on October 19, 1987?

Q: The Black–Scholes–Merton price of an out-of

The Black–Scholes–Merton price of an out-of-the-money call option with an exercise price of $40 is $4. A trader who has written the option plans to use a stop-loss strategy. The trader’s plan is to bu...

Q: Suppose that a stock price is currently $20 and that a

Suppose that a stock price is currently $20 and that a call option with an exercise price of $25 is created synthetically using a continually changing position in the stock. Consider the following two...

Q: Explain the problems in testing a stock option pricing model empirically.

Explain the problems in testing a stock option pricing model empirically.