Deri_Ex4.pdf - Derivatives and Risk Management Exercise Session#4 Deadline at 14.00 Return your answers either to the exercise session or to my mail box

# Deri_Ex4.pdf - Derivatives and Risk Management Exercise...

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Derivatives and Risk Management Exercise Session #4 Deadline: May 18, 2016 at 14.00 Return your answers either to the exercise session or to my mail box at the Finance department before the deadline. Each student should hand in their own solutions. Keep your answers clear and concise! 1. Suppose that the spot rate to change euros to Australian dollars is S AUD/EUR = 1 . 5497. The one year interest rate for euro deposits is 0.50% and for Aus- tralian dollar deposits it is 2.45%. What should be the 12 month forward rate F 12 AUD/EUR to change euros to dollars? 2. You are the portfolio manager in a well-diversified equity mutual fund (well- diversified implies that the portfolio carries no idiosyncratic risk). You want to hedge your portfolio for one month against a fall in the stock market. The market value of the fund is 10 million euros. The current value of the stock index is 626, and the following index put options are available with expiry in one month: Strike Put price 560 3.60 580 5.75 600 9.60 620 16.90 640 27.20 (a) You have calculated that the portfolio’s beta is 1. The index options have a multiple of 100, i.e. they are options on 100 times the index value. How

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