Math 4355/7355
Fall 2016, Section 01 (Goldschmidt)
Your Name:
Student ID:
Exam 2 - Sample Questions
Please answer questions 1 - 11
10. (20 points) Currency Carry Trade
Suppose rA is the Australian cen
6. Forwards, Currency Trades and Currency Options
Outright Purchases, Prepaid Forwards and Forwards
Most often, an investor who wants to purchase an asset will pay immediately and take position in 3 d
7. Bonds and Fixed Income Mathematics
U.S. Treasury Bills, Notes and Bonds
The U.S. Treasury issues securities with maturities of 3 months, 6 months, 1 year, 2 years, 3 years, 5 years,
7 years, 10 yea
2. Option Trading Strategies and No Arbitrage Pricing
Put-Call Parity Equation for European Options
We begin this section by developing a fundamental result in option pricing theory known as the put-c
5. Black-Scholes Formula and Option Greeks
The Black-Scholes formula calculates prices for European-style options. The formula and the resulting partial
sensitivities are used by most industry partici
Math 4355
Fall 2016, Section 01 (Goldschmidt)
Your Name:
Student ID:
Exam 1 - Sample Questions
Please answer questions 1 - 9.
1. (15 points) Option Premiums by Strike
a) Suppose that two European call
4. Comparative Option Pricing
European vs American Options
Suppose we own a European call option on an asset at strike price K expiring in T years. The payment of the
premium gives us the right to pur
1. Introduction to Forwards and Options
Forward Contracts
The process of buying or selling a stock (or other asset) consists of the following three events.
1. Buyer and Seller agree to an asset, price
3. Hedging and Risk Management
Introduction
In section 2, we studied many stand-alone derivative and option trading strategies such as bull spreads, bear
spreads, straddles, strangles and butterflies.
S
40.00
40.00
40.00
K
35.00
40.00
45.00
S
40.00
F_0,T
40.09
S
40.00
40.00
K
38.00
43.00
30.00%
30.00%
30.00%
30.00%
30.00%
r
0.36%
0.36%
0.36%
r
0.36%
0.36%
T
0.595
0.595
0.595
d1
d2
0.00%
0.00%
0.00%
8. Swaps and Interest Rate Hedging
Introduction
Most of our semester has been devoted to the study of two basic types of derivative contracts: forward contracts
and European-style options. These two t
12. Black-Scholes Formula (Introduction)
The Black-Scholes formula calculates prices for European-style options. The formula and the resulting partial
sensitivities are used by most industry participa
2. Introduction to Forward Contracts and Options (Part 1)
Forward Contracts
The process of buying or selling a stock (or other asset) consists of the following three events.
1. Buyer and Seller agree
5. Forwards, Futures and Currency Transactions
Outright Purchases, Prepaid Forwards and Forwards
Most often, an investor who wants to purchase an asset will pay immediately and take position in 0-3 da
7. Duration and Convexity
As we saw in some preliminary calculations in the last section, bond prices are sensitive to changes in yield.
Measuring this sensitivity is a vital task when balancing and h
7. Interest Rate Forwards and Futures
U.S. Treasury "Bonds"
The U.S. Treasury issues securities with maturities of 3 months, 6 months, 1 year, 2 years, 3 years, 5 years, 7
years, 10 years, 20 years an
9. Comparative Option Pricing
European vs American Options
Suppose we own a European call option on an asset at strike price K expiring in T years. The payment of the
premium gives us the right to pur
4. Risk Management and Hedging (Part 2)
Collars and Paylaters
In Part 1, we looked at two extreme approaches to hedging a natural long position. A short forward hedge
preserves the commodity producers
12. Black-Scholes Formula (Derivation and Option Greeks)
N (d2 ): Probability of Call Option Exercise
Let S be the current price of a stock and let ST be the price of that same stock after T years. Ne
4. Risk Management and Hedging (Part 1)
Introduction
In Chapter 3, we studied many stand-alone derivative and option trading strategies such as bull spreads, bear
spreads, straddles, strangles and but
3. Option Trading Strategies and No Arbitrage Pricing
Put-Call Parity Equation for European Options
In this section, we develop a fundamental mathematical result in option pricing theory known as the
8. Swaps and Interest Rate Hedging
Introduction
Most of our semester has been devoted to the study of two basic types of derivative contracts: forward contracts
and European-style options. These two t
2. Introduction to Forward Contracts and Options (Part 2)
Comparing 3 Types of Long Positions
We have now looked at three different positions that are long with respect to the underlying asset. Each o