FINS3635 Options Group Assignment
Group Members:
Yunlong Justin Zhang - z3249617
Peter Yue Wang - z3219718
Sang Hoon Kim - z3212203
Shanshan Cathy Liu - z3284821
Michael Lawrence - z3290926
Selected Stocks:
Large market cap: AAPL - Apple Inc. (NASDAQ)
Med
Swaps
NOTE: for interest rate swaps, the principal need not be
(Ref: Ch. 7, Hull)
exchanged; here it is exchanged. (This implies a
greater default risk for currency swaps.)
Comparative Advantage Argument
7.8 Currency Swaps
Example: Suppose the current New
FINS 5535 PRACTICE PROBLEMS
Ch. 18 The Greek Letters
For the practice problems, you can use either the 4th, 5th, 6th, 7th or 8th Edition of Hull.
However, you have to be careful with the numbering. All the solutions will use the
numbering of the 8th Editi
FINS 5535 PRACTICE PROBLEMS
Ch. 14 The Black-Scholes-Merton Model
For the practice problems, you can use either the 4th, 5th, 6th, 7th or 8th Editions of Hull.
However, you have to be careful with the numbering. All the solutions will use the
numbering of
FINS 5535 PRACTICE PROBLEMS
Ch. 25 Exotic Options
For the practice problems, you can use either the 4th, 5th, 6th, 7th or 8th Edition of Hull.
However, all the solutions will use the numbering of the 8th Edition, so when checking your
answers, you will ha
FINS5535 Extra problems for Ch. 11 (8th Ed.)
For each of the following combinations of options, draw the payoff and profit diagrams,
as well as (a) the maximum loss (b) the maximum gain, (c) whether you hope the price
increases or decreases (or whatever),
FINS 5535 PRACTICE PROBLEMS
For the practice problems, you can use either the 5th, 6th, 7th or 8th Edition of Hull.
However, you have to be careful with the numbering. All the solutions will use the
numbering of the 8th Edition, so when checking your answ
FINS 5535 PRACTICE PROBLEMS
For the practice problems, you can use either the 5th, 6th, 7th or 8th Edition of Hull.
However, you have to be careful with the numbering. All the solutions will use the
numbering of the 8th Edition, so when checking your answ
FINS5535
Lecture 10
The Greek Letters, Ch. 18
Lecture 10
The market for options and risks
If you buy or write an option on an OTC market, who is on the
opposite side?
What risks should they hedge against?
Immunize against movements in the underlying an
FINS5535 PRACTICE PROBLEMS: Ch. 9-10
For the practice problems, you can use either the 5th, 6th, 7th or 8th Edition of Hull.
However, all the solutions will use the numbering of the 8th Edition, so when checking
your answers, you will have to be careful t
FINS 5535 PRACTICE PROBLEMS
Ch. 20 Numerical Procedures
For the practice problems, you can use either the 4th, 5th, 6th, 7th or 8th Edition of Hull.
However, you have to be careful with the numbering. All the solutions will use the
numbering of the 8th Ed
FINS 5535 PRACTICE PROBLEMS
Ch. 16 and Ch. 17 Options on Stock Indices, Currencies, and Futures
For the practice problems, you can use either the 4th, 5th, 6th, 7th or 8th Edition of Hull.
However, you have to be careful with the numbering. All the soluti
Options and other derivative securities are important
Options Markets: Introduction
because:
(Hull Ch. 9-11, 8th Ed.)
they are effective risk management tools;
you can think of any asset as a portfolio of options
THE OPTION CONTRACT
you can use options to
If the stated, or quoted rate (sometimes called the APR)
Determination of Forward and Futures Prices
is r compounded m times per year then we get the
(Hull Ch. 5)
EAR by compounding:
1 + y = (1 +
Continuous compounding
Its common to use continuously compo
The one who agrees to buy the asset at the future date
Hedging Strategies Using Futures
has a long position; the one who agrees to sell the
(Hull Ch. 3)
asset at the future date has a short position.
Example: Grain forwards. The grain farmer has the
FORWA
Introduction to Binomial Trees
to a 10% increase in the stocks price, and d =
(Hull Ch. 12)
Sd 45
=
S
50
= 0.90, which corresponds to a 10% decrease. In
Binomial Option Pricing
addition, there is a one-year European call on the stock
Two-State Option Pric
FINS 5535 PRACTICE PROBLEMS
For the practice problems, you can use either the 5th, 6th, 7th or 8th Edition of Hull.
However, you have to be careful with the numbering. All the solutions will use the
numbering of the 8th Edition, so when checking your answ
FINS 5535 PRACTICE PROBLEMS
Ch. 13 Wiener Processes and Its Lemma
For the practice problems, you can use either the 4th, 5th, 6th, 7th or 8th Editions of Hull.
However, you have to be careful with the numbering. All the solutions will use the
numbering of
4/15/2014
The Perfect Payday - WSJ.com
Dow Jones Reprints: This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues,
clients or customers, use the Order Reprints tool at the bottom of
FINS5535 PRACTICE PROBLEMS
For the practice problems, you can use either the 5th, 6th, 7th or 8th Edition of Hull.
However, all the solutions will use the numbering of the 8th Edition, so when checking
your answers, you will have to be careful to check th
FINS5535
Lecture 2 Optimal Hedging and Pricing Forwards and Futures
Quick recaps from last week
Perfect hedge: eliminate the price risk completely. To achieve
this, size, maturity and underlying assets must be perfectly
matched.
Imperfect hedge:
Mismat
The one who agrees to buy the asset at the future date
Hedging Strategies Using Futures
has a long position; the one who agrees to sell the
(Hull Ch. 3)
asset at the future date has a short position.
Example: Grain forwards. The grain farmer has the
FORWA
FINS5535
Lecture 9
Options on Stock Indices, Currencies & Futures, Ch. 16 & 17
Lecture 9
Black-Scholes for non-dividend stock
c S 0 N (d1 ) K e rT N (d 2 )
p K e
rT
N ( d 2 ) S 0 N ( d1 )
2
ln(S 0 / K ) (r / 2)T
where d1
T
ln(S 0 / K ) (r 2 / 2)T
d2
d
FINS5535
Lecture 8 Black-Scholes-Merton Model Ch. 14
Lecture Outline
Revision of stochastic processes
The Black-Scholes-Merton differential
equation
Risk-neutral valuation
Pricing European options
Pricing American options
L 8 Black-Scholes
Model
2
Stochas
FINS5535
Lecture 11
Basic Numerical Procedures, Ch. 20
Lecture 11
Approaches to Derivatives Valuation
n Trees (introduced in Chapter 12)
Binomial
Trinomial
Enhanced methods (BBSR)
n Monte Carlo simulation (Briefly introduced in Chapter 13)
n Finite dif
FINS5535
Bonus Material
The Implied Volatility Surface in Options Markets, Ch. 19
Bonus Material
What is a Volatility Smile?
n It is the relationship between implied volatility and strike price for
options with a certain maturity
n The volatility smile fo
FINS5535
Lecture 7 Stochastic Processes Ch. 13
Wiener Processes and Its Lemma (Ch. 13)
Stochastic Process:
Discrete vs continuous time
Discrete vs continuous variable
Markov process
Properties
Subsets of Markov processes
Wiener process
Generalized W
FINS 5535 Derivatives and Risk
Management Techniques
Dr Li Yang
School of Banking and Finance
UNSW
School of Banking and Finance, UNSW
1
FINS5535 Derivatives and Risk
Management Techniques
Lecturer
Dr. Li Yang (Lecturer-in-charge)
Office: ASB 362; Tel: 93
FINS5535
Lecture 4 Option strategies
Option strategies
Hedging strategies
Reduce or eliminate risk by combining underlying assets with
options on the underlying assets such as covered call (long stock
and short option) and protective put (long stock and
FINS5535 FORMULAS
FUTURES AND FORWARDS
Basis: St Ft.
Optimal Hedge Ratio: h* =
NF
= S .
NA
F
Number of optimal contracts: N * =
s Ns
*
F fcs
F0 = S0erT;
Forward Prices: no dividends:
F0 = (S0 I)erT;
dividends:
dividend yield: F0 = S0e(r q)T;
( r r f )T