Formulae-Sheet-Midterm-2 - FINE 448 - Derivatives and Risk...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: FINE 448 - Derivatives and Risk Management Formulae Sheet. Midterm #2. June 13th, 2007 You may detach this sheet from the exam for convenience Interest Rates Discrete compounding A & 1 + R m ¡ nm Continuous compounding Ae rT European Options Lower Bound c & S ¡ D ¡ Ke & rT or c & S e & qT ¡ Ke & rT p & Ke & rT + D ¡ S or p & Ke & rT ¡ S e qT Put-Call Parity c + D + Ke & rT = p + S c + Ke & rT = p + S e & qT Binomial Model Volatility matching u = e & p & t ; d = e & & p & t Risk-Neutral probability of an up move p ¡ = a ¡ d u ¡ d where a = e r & t For non dividend paying stock a = e ( r & q )& t For dividend paying stock a = e ( r & r f ) & t For a currency where r f is the foreign risk free rate a = 1 For a futures contract For a two-steps Binomial tree, Risk-Neutral Valuation f = e & r 2& t ¢ p ¡ 2 f u u + 2(1 ¡ p ¡ ) p ¡ f ud + (1 ¡ p ¡ ) 2 f dd £ 1 Log normal distribution for stock price If the percentage change of a stock price follows S T & S S ¡ Normal & &T;¡ p...
View Full Document

Page1 / 3

Formulae-Sheet-Midterm-2 - FINE 448 - Derivatives and Risk...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online