Introduction to derivatives, Fall 2011
BUSI 588, Case 3
Rocinante: put call parity and arbitrage
Please prepare for class discussion on Wednesday, 8/31.
Rocinante is considering trading on options on gold, the most liquid asset in medieval Europe (the
tim
Introduction to derivatives, Fall 2011
BUSI 588, Homework 5 solutions
Homework 5 solutions
1. Please refer to hw5.xls for details on the calculations.
(a) The solution to the rst part proceeds by solving for F from the pricing equation
D = 30 = 100 C (S =
Rules of the game
The course
Derivatives and the crisis
Lecture 1 - Introduction
MBA 783, Fall 2011
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
August 18th, 2011
c Diego Garc MBA 783, Kenan-Flagler, Fall 2011
a,
Lecture 1 - Introduction
Introduction to derivatives, Fall 2011
BUSI 588, Homework 4
Homework 4
Due at the beginning of class, September 28th, 2011.
1. (*) You know the current value of a call option on the S&P500 with a strike price of $1350 and
one-year maturity is $76. The S&P
Pricing in a binomial world
Iniesta
Lecture 5 - Risk-neutral probabilities
BUSI 588, Fall 2011
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
September 12th, 2011
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2011
a,
Lecture 5 - Risk-neutral p
CHAPTER 20
Value at Risk
Practice Questions
Problem 20.8.
A company uses an EWMA model for forecasting volatility. It decides to change the
parameter from 0.95 to 0.85. Explain the likely impact on the forecasts.
2
Reducing from 0.95 to 0.85 means that mo
Introduction to derivatives, Fall 2011
BUSI 588, Case 5
Ibrahimovic and risk-neutral pricing
Please prepare for class discussion on Monday, 9/12.
Ibrahimovic is seriously considering giving up his full-time job now that he has learnt about trading
nancial
Introduction to derivatives, Fall 2011
BUSI 588, Case 4 solutions
Solutions to Bachelier: forward contracts and foreign bonds
1. (*) The basic point of this question was to make you scratch your head and realize the
forward prices are determined solely by
Introduction to derivatives, Fall 2011
BUSI 588, Homework 5
Homework 5
Due at the beginning of class, October 12th, 2011.
1. (*) A rm want to raise $30m to invest in a project. After the $30m investment, the rm will
have a total asset value of $100. The r
Recap
Final exam 2010
Course wrap-up
Lecture 14 - Final review
BUSI 588, Fall 2011
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
October 12th, 2011
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2011
a,
Lecture 14 - Final review
1 / 24
Recap
F
Introduction to derivatives, Fall 2011
BUSI 588, Case 4
Bachelier: forward contracts and foreign bonds
Please prepare for class discussion on Wednesday, 9/7.
Bachelier, grand-grand-grand-son of the founder of Brownie-emotion Corporation, is struggling
wit
Introduction to derivatives, Fall 2011
BUSI 588, Homework 4 solutions
Solutions to Homework 4
1. (*) See hw4.xls for details on the calculations.
(a) Using the Black-Scholes formula (including dividends) one can back out the value for the
volatility from
Introduction to derivatives, Fall 2011
BUSI 588, Final exam solutions
Introduction to derivatives
BUSI 588, Final Exam Solutions, Fall 2010
Problem 1 - Oratio Dominica (25 points)
1. The Black-Scholes ABC.
(a) According to the Black-Scholes model, the pri
Recap
Final exam
Course wrap-up
Lecture 14 - Final review
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
October 10th, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
a,
Recap
Final exam
Lecture 14 - Final review
1
Introduction to derivatives, Fall 2011
BUSI 588, Homework 3
Homework 3
Due at the beginning of class, September 21st, 2011.
1. (*) Consider pricing a call option with a strike price of $100 with 4-month maturity on the
S&P 500 index. For the purposes of t
Equity and debt options
Botvinnik case
Lecture 11 - Risky debt
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
October 1st, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
a,
Equity and debt options
Lecture 11 - Risk
Equity and debt options
Other options in corporate securities
MIM
Lecture 12 - Incentives and convertibles
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
October 3rd, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
CHAPTER 4
Interest Rates
Practice Questions
Problem 4.8.
The cash prices of six-month and one-year Treasury bills are 94.0 and 89.0. A 1.5-year bond
that will pay coupons of $4 every six months currently sells for $94.84. A two-year bond that
will pay cou
Recap
Real options
Implied volatilities
Lecture 13 - Real options
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
October 8th, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
a,
Recap
Lecture 13 - Real options
Real o
Lecture 2 Notes
A derivative security is a
legal contract between two counterparties; which specifies a set of payments (payoffs) to
be received or paid by each counterparty;
where the payments depend upon (are a function of) some other assets future pric
CHAPTER 1
Introduction
Practice Questions
Problem 1.8.
Suppose you own 5,000 shares that are worth $25 each. How can put options be used to
provide you with insurance against a decline in the value of your holding over the next four
months?
You should buy
CHAPTER 2
Mechanics of Futures Markets
Practice Questions
Problem 2.8.
The party with a short position in a futures contract sometimes has options as to the precise
asset that will be delivered, where delivery will take place, when delivery will take plac
CHAPTER 3
Hedging Strategies Using Futures
Practice Questions
Problem 3.8.
In the Chicago Board of Trades corn futures contract, the following delivery months are
available: March, May, July, September, and December. State the contract that should be
used
Recap
Hedging using futures
Lecture 10 - Hedging with futures
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
September 26th, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
a,
Recap
Lecture 10 - Hedging with futures
Recap on Black-Scholes
Volatility
American options
Lecture 9 - American options
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
September 24th, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
a,
Recap on Black-Schole
Introduction to derivatives, Fall 2011
BUSI 588, Case 9 solutions
Solutions to Galitzin - pricing American options
1. (*) The rst issue was to deal with what volatility number to use. The data was in daily
format, and in prive levels, so a reasonable rst
Recap
Forward pricing
Future contracts
Lecture 4 - Forwards and futures
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
September 5th, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
a,
Recap
Forward pricing
Lecture
Rules of the game
The course
Derivatives and the crisis
Lecture 1 - Introduction
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
August 22nd, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
a,
Rules of the game
The c
Derivatives - basics
Payo tables and payo diagrams
Trading strategies using options
Lecture 2 - Option payos
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
August 27th, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 201
Put-call parity
Other static trades
Lecture 3 - Static option trades
BUSI 588, Fall 2012
Diego Garc
a
Kenan-Flagler Business School
UNC at Chapel Hill
August 29th, 2012
c Diego Garc BUSI 588, Kenan-Flagler, Fall 2012
a,
Put-call parity
Lecture 3 - Static