Unformatted text preview: option limits both the upside and downside of payoﬀ.
Now we consider a speciﬁc problem. The price of the risk-free asset, with r = 1.05, is 1. The price
of the underlying asset is S0 = 1. We will use m = 200 scenarios, with S (i) uniformly spaced from
S (1) = 0.5 to S (200) = 2. The following options are traded on an exchange, with prices listed below.
0.01. A collar with ﬂoor F = 0.9 and cap C = 1.15 is not traded on an exchange. Find the range of
prices for this collar, consistent with the absence of arbitrage and the prices given above.
13.17 Portfolio optimization with qualitative return forecasts. We consider the risk-return portfolio optimization problem described on pages 155 and 185 of the book, with one twist: We don’t precisely
know the mean return vector p. Instead, we have a range of possible values for each asset, i.e., we
have l, u ∈ R with l
¯ u. We use l and u to encode various qualitative forecasts we ha...
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This note was uploaded on 09/10/2013 for the course C 231 taught by Professor F.borrelli during the Fall '13 term at Berkeley.
- Fall '13
- The Aeneid