Questions from Business Statistics

Q: Calculate the delta of an at-the-money six-

Calculate the delta of an at-the-money six-month European call option on a non-dividend- paying stock when the risk-free interest rate is 10% per annum and the stock price volatility is 25% per annum....

Q: What volatility smile is likely to be observed when: (

What volatility smile is likely to be observed when: (a) Both tails of the stock price distribution are less heavy than those of the lognormal distribution? (b) The right tail is heavier, and the left...

Q: What volatility smile is observed for equities?

What volatility smile is observed for equities?

Q: What volatility smile is likely to be caused by jumps in the

What volatility smile is likely to be caused by jumps in the underlying asset price? Is the pattern likely to be more pronounced for a 2-year option than for a 3-month option?

Q: Data for a number of foreign currencies are provided on the author’s

Data for a number of foreign currencies are provided on the author’s website: http://www-2.rotman.utoronto.ca/_hull/data Choose a currency and use the data to produce a table simil...

Q: A trader enters into a short cotton futures contract when the futures

A trader enters into a short cotton futures contract when the futures price is 50 cents per pound. The contract is for the delivery of 50,000 pounds. How much does the trader gain or lose if the cotto...

Q: A European call and put option have the same strike price and

A European call and put option have the same strike price and time to maturity. The call has an implied volatility of 30% and the put has an implied volatility of 25%. What trades would you do?

Q: A stock price is currently $20. Tomorrow, news is

A stock price is currently $20. Tomorrow, news is expected to be announced that will either increase the price by $5 or decrease the price by $5. What are the problems in using Black–Scholes–Merton to...

Q: What volatility smile is likely to be observed for 6-month

What volatility smile is likely to be observed for 6-month options when the volatility is uncertain and positively correlated to the stock price?

Q: Suppose you know that the gamma of the portfolio in the previous

Suppose you know that the gamma of the portfolio in the previous question is 16.2. How does this change your estimate of the relationship between the change in the portfolio value and the percentage c...