FE 620
Assignment - 2
Name- Jay Soni
CWID: 10406256
Value of S&P 500 index = 1250
S&P 500 futures price= 1259
Value of portfolio VA= $50,000,000 Risk-free interest rate= 6% per annum Dividend
yield on index= 3% per annum Beta of portfolio= 0.87
A)
let Bet

FE 620
Assignment - 2
Name- Jay Soni
CWID: 10406256
Value of S&P 500 index = 1250
S&P 500 futures price= 1259
Value of portfolio VA= $50,000,000 Risk-free interest rate= 6% per annum Dividend
yield on index= 3% per annum Beta of portfolio= 0.87
A)
let Bet

FE 620
HW 5
Name- Jay Soni
Id- 10406256
7.23. Under the terms of an interest rate swap, a financial institution has agreed
to pay 10% per annum and to receive 3-month LIBOR in return on a notional
principal of $100 million with payments being exchanged ev

Few inspirations learned from the classic film Its a wonderful Life
The film provides a contrast between two financial models.
a. A local and community based progressive lending represented in the Building and Loan
financial institution which value its cu

Solution to problem 3.28
VA
= The portfolio value = $50,000,000,
= Portfolio beta = 0.87
r = risk-free interest rate = 0.06 per annum : interest per 2-month = 0.06 * 2/12 = 0.01
b = dividend yield = 0.03 per annum dividend per 2 month = 0.03 * 2/12 = 0.00

Solution to problem 4.32
The following table gives the prices of bonds
Bond Principal ($)
100
100
100
100
Time to Maturity
(yrs)
0.5
1.0
1.5
2.0
Annual Coupon ($)*
Bond Price ($)
0.0
0.0
6.2
8.0
98
95
101
104
a) To determine the treasury ze

Solution to problem 6.28
a) The future price is $118 23/32 = $118.71875. On the first day of the delivery month the bond has
15 years and 7 months to maturity. We assume the bond lasts 15.5 years at 6% per an

Solution to problem 7.23
National principal = 100 millions
Fixed rate = 0.1
Floating rate = 0.12 (Quarterly compounded) or
=4*LN (1+0.12/4) = 0.118 (continuously compounded)
We can evaluate the swap as a long

Solution to problem 9.25
S = 30
r = 0.05
K = 32
= 0.3
T = 1.5
Using the DeriviaGem Excel application the option value is $4.57
a) Put Options intrinsic value = max(Strike price Spot price, 0) or

Solution to problem 12.20
We have:
!", !", !.!", !.!
Time to maturity T = 0.5,
Then
and number of steps N= 2
=
a) From the text book we also have
= !
!
, =
= 0.25
1
, =
, = !
Then
= !.!
!

Solution to problem 14.31
We have:
!", !", !.!, !.!, !.!
We follow the book example 14.10
a) First we calculate the option price as European with 2 dividends. The present value of
the dividends is
0.4
!.!
!
!"
+ 0.4

Further Questions
Problem 4.25 (Excel file)
A five-year bond provides a coupon of 5% per annum payable semiannually. Its price is 104.
What is the bond's yield? You may find Excel's Solver useful.
The answer (with continuous compounding) is 4.07%
Problem

Chapter 3 In-class Practice Problems
1. A company wishes to hedge its exposure to a new fuel whose price changes
have a 0.6 correlation with gasoline futures price changes. The company will lose
$1 million for each 1 cent increase in the price per gallon

Problems on Options
1 A stock price is currently $100. Over of each of the next two six-month periods, it is expected
to go up by 10% or down by 10%. The risk free rate is 8% per annum with continuous
compounding. What is the value of a one-year European

Topic Options of Final Presentation
1. Recycling is the process of collecting and processing materials that
would otherwise be thrown away as trash and turning them into new
products. Recycling can benefit community and the environment.
MATERIALS FROM INT

2015-2016 Academic Calendar
Date
Announcement
Monday, August 3, 2015
Last Day to submit an Undergraduate Application for Candidacy for
February Graduation.
2015 Fall Semester
Monday, August 31, 2015
First Day of Classes 2015 Fall.
Last Day for 100% Refun

2014-2015 Academic Calendar
Date
Announcement
Friday, August 1, 2014
Last Day to submit an Undergraduate Application for Candidacy for
January Graduation.
2014 Fall Semester
Monday, August 25, 2014
First Day of Classes 2014 Fall.
Last Day for 100% Refund

Homework 3 for FE620
Qin Jiao
4.27
a) The zero rate (continuous compounding) for a 6-month
maturity bond is
R1 2 ln(1
0.0408
) 0.04039
2
The zero rate (continuous compounding) for a 1-year maturity
bond is
R2 ln(1
5
) 0.05129
95
Thus, the 1.5-year rate

Homework 4 for FE620
Qin Jiao
5.25
a) First lets consider borrowing cash from bank, suppose we need
$3000 from bank now. Then 1 year later, the cash we need to pay
back to bank is:
3000
1+0.11=3330
b) Suppose gold price is $1500 per ounce nowadays. Simil

Homework 5 for FE620
Qin Jiao
6.25
a) The bond has 15 years and 7 months to maturity. We round it to
15 years and a half. Since the bond pays its coupon semiannually,
we can get the value of the bond:
31
5
1.03
i
i 1
100
140.00
1.0331
Divided by its face

Homework 6 for FE620
Qin Jiao
721
In order to calculate the value of the swap, we need to know the
discount rate (continuous compounding) of the market. Since the
LABOR is 12% per annual with quarterly compounding, the
continuous compounding discount rate

Homework 7 for FE620
Qin Jiao
8.25
a. The intrinsic value of the option is:
32-30=2
b. We can get the value of the option from DerivaGem, the value is
4.57. Thus the options time value is
4.57-2=2.57
c. A time value of zero means it is optimal to exercise

Homework 8 for FE620
Qin Jiao
11.20
a.
u e
T
e0.3
0.25
1.1618
d 1 / u 0.8607
p
e rT d e0.040.25 0.8607
0.4960
ud
1.1618 0.8607
b.
53.9912
46.472
13.9912
6.8706
40
39.9985
3.3739
0
34.428
0
29.6322
0
The option price is 3.3739.
c. Use Equity as underlyi

IB Project for FE620
Qin Jiao
Arbitrage opportunities in Security trading
Arbitrage is the practice of taking advantage of a price difference between two
or more market. In principle and in academic, arbitrage is the possibility of a
risk-free profit at z

This section below is for studying
purposes.
Push the "Run" button - get the
price of a call in "E24" and for a
put in "E25". Asset price tree will
be printed on "Asset tree" tab.
Option price tree will be printed
on "Price Tree" tab.
Vanilla Option
Put/C

American Put Price
N (= 252*5)
1260
T
5
r
0.007937%
sigma
0.05
K
21
S_0
20
M
10000
Put Price(N=1260)
0.9605159315
Black-Scholes
Put/Call
P/C
Asset Price(S)
Strike Price(K)
Time to Maturity(T-t)
Volatility(sigma)
Rate
Dividend
d1
d2
N(d1)
N(d2)
N'(d1)
call