Midterm Summary
FIN9797: Options Markets, Liuren Wu
1
List of Topics
1. Payoffs: forward, call, put, stock(spot), bond
(a) Can plot/describe the payoff of any combinations/portfolios of the above instruments.
When the portfolio contains options, it is im
Option Properties
Liuren Wu
Zicklin School of Business, Baruch College
Options Markets
(Hull chapter: 9)
Liuren Wu (Baruch)
Option Properties
Options Markets
1 / 17
Notation
c: European call option price. C American call price.
p: European put option pric
Options Trading Strategies
Liuren Wu
Zicklin School of Business, Baruch College
Options Markets
(Hull chapter: 10)
Liuren Wu (Baruch)
Options Trading Strategies
Options Markets
1 / 18
Objectives
A strategy is a set of options positions to achieve a partic
Sample exercise questions for the midterm
FIN9797: Options Markets, Liuren Wu
1. If you long a forward contract on a security with a delivery price of $100,
(a) What is your payoff at expiry if the security price at expiry (ST ) is $80? What is your payof
3. Option strategies
Liuren Wu
We consider one underlying risky security (it can be a stock or exchange rate), and we use S to denote
its price, with S0 = 100 being its current price and ST being its future price at time T . Ignore bid-ask spread
and tran
Midterm Exam
FIN9797: Options Markets, Liuren Wu, Spring 2008
Assume a continuously compounding dollar interest rate of 4% for all maturities, whenever applicable.
1. (25) If you are long 200 1-year forward contracts on a security with a delivery price (K
1. Forward and Futures
Liuren Wu
For the rs three chapters and the midterm exam, I will focus on payoffs and pricing.
For payoffs, I want you to be familiar with plotting (and understanding) the payoffs of bonds, stocks
(or other spot contracts such as cu
Midterm Exam
FIN9797: Options Markets, Liuren Wu, Spring 2009
Assume a continuously compounding dollar interest rate of 4% for all maturities, whenever applicable.
1. (28) Plot the payoff of the following (portfolio of) positions as a function of the unde
1. Forward and Futures
Liuren Wu
We consider only one underlying risky security (it can be a stock or exchange rate), and we use S to
denote its price, with S0 being its current price (known) and ST being its price at time T (unknown). Also,
ignore bid-as
Midterm Exam
FIN9797: Options Markets, Liuren Wu
Assume a continuously compounding dollar interest rate of 5% for all maturities, whenever applicable.
1. (30) If you long a 1-year forward contract on a security with a delivery price (K) of $55,
(a) (10) W
Midterm Exam
FIN9797: Options Markets, Liuren Wu, Spring 2008
Assume a continuously compounding dollar interest rate of 5% for all maturities, whenever applicable.
1. (30) If you go short a 2-year forward contract on a security with a delivery price (K) o
FIN9797: Options Markets, Final Exam Solutions, Fall 2008
credits
100
r
St
sigma
1
(a)
(b)
0%
50
40%
lnST/St
Mat
5 mean
5 Variance
Delta t
u
d
q
0%
0.25
-0.0200
0.0400
0.25
1.221403
0.818731
74.591235
61.0701
10 stock tree
50.0000
50
40.936538
33.516002
(
3. Option strategies
Liuren Wu
We consider one underlying risky security (it can be a stock or exchange rate), and we use S to denote
its price, with S0 = 100 being its current price and ST being its future price at time T . Ignore bid-ask spread
and tran
4. Binomial tree
Liuren Wu
(A) 110
(D) 105
PP
P
P
(F) St = 100 PPP
(B) 100
P
(E) 95 PPP
P
(C) 90
Consider the above two-step binomial tree, with each step being three months, t = 0.25. The stock price
is shown on the tree. The continuously compounding in
The Black-Scholes Model
Liuren Wu
Zicklin School of Business, Baruch College
Options Markets
(Hull chapter: 12, 13, 14)
Liuren Wu
The Black-Scholes Model
Options Markets
1 / 19
The Black-Scholes-Merton (BSM) model
Black and Scholes (1973) and Merton (1973
Final Exam
FIN9797: Options Markets, Liuren Wu, Spring 2008
Assume a continuously compounding dollar interest rate of 5% for all maturities, whenever applicable.
1. Consider a non-dividend paying stock, with a current price (St ) of $100 and a constant an