Homework (Due on 13 May 2013 before the class)
1. The price of an American call on a non-dividend-paying stock is $4. The stock price
is $51, the strike price is $50, and the expiration date is in three months. The risk free
interest rate is 3%.
a. Derive
Chapter 7 Optimal Risky Portfolios
The following data apply to Problems 4 through 10: A pension fund manager is
considering three mutual funds. The first is a stock fund, the second is a long-term
government and corporate bond fund, and the third is a T-b
Chapter 8 Index Models
6. The following are estimates for two stocks:
Stock
Expected Return Beta
Firm-Specific Standard Deviation
TM
13%
0.8
30%
BMW
18%
1.2
40%
The market index has a standard deviations of 22% and the risk-free rate is 8%.
(a) What are t
ISOM3210
Information Systems Analysis and De
sign
Lecture 16:
Design and
Implementation
1
Exercise #2
Create a sequence diagram for the use ca
ses of the campus housing system
2
Use Case ID
UC-200
Use Case
Add Apartments
Actors
(P) Owner (S) Service Staff
FINA3402 Derivative Securities
Chapter 2
Mechanics of Futures Markets
1
1
Forward Contracts
The simplest derivatives
Forward contracts are almost all traded in overthe-counter (OTC) markets.
Contract specification:
Amount and quality of good to be deliver
Properties of Options Prices
1
Notation
c0 : European call
option price today
p0 : European put
option price today
S0 : Stock price today
K : Strike price
T : Life of option
: Volatility of stock
price
C0 : American Call option
price today
P0 : American P
Options and Stocks Market
1
Information
If you have private information about a stock,
which market you would like to trade, options
or stocks?
2
Information
Jun and Poteshman (2006) The Information in Optio
n Volume for Future Stock Prices Review of Fina
Options Strategies
1
Three Alternative Strategies
Take a position in the option and the underlying
Take a position in 2 or more options of the same class (calls
or puts) (spread)
Combination: Take a position in a mixture of calls & puts
(straddle, strangl
Introduction to Binomial Options
Pricing
1
Assumptions
1.
No transaction cost
2.
Stock can be short easily without costs
3.
4.
5.
All trading profits are subject to the same tax rate
(or no tax rate)
Borrowing and lending are possible at the risk free
(or
VIX
Trading the VIX
The Chicago Board Options Exchange Volatility Index (VIX) is a measure of the
implied volatility of S&P 500 index options. It considers the options prices (nearest to
expiry) observed in the market, and calculates the volatility implie
CHAPTER 1
Introduction
Practice Questions
Problem 1.1
What is the difference between a long forward position and a short forward position?
When a trader enters into a long forward contract, she is agreeing to buy the underlying asset
for a certain price a
Syllabus: FINA 3204 Derivative Securities (Spring 2013)
Instructor: Professor NI, Sophie
Email: [email protected]
Office Address: Room 2385; Tel: 2358 5052
Office Hours: Friday 3-4:30pm, or by appointment, or just stop by at any time. Also if you
have any q
ISOM3210
Information Systems Analysis and Design
Lecture 7 and 8:
Data Modeling
1
Exercise #1
Draw the cardinalities for the following relationships
Scenario: Course taking and offering in the university
takes
is taken by
Course
Department
offers
is offe
How to Win Friendship in Workplace
This program is designed to help your staff to perfect their communication
and inter-personal skills for goal achieving in a workplace context where
the emphasis is on collaboration, team and motivation.
Day
Program Sche
FINA 3402 Derivative Securities
Chapter 5
Forward and Futures
Price
Text book Ch5.1 5.10, 5.14
1
Forward Prices
By convention, forward contracts (and futures)
are entered into without either side paying the
other anything up-front.
At which forward price
FINA3402 Derivative Securities
Chapter 3
Hedging Strategies
1
1
Who hedge?
Buyer of an underlying
Food manufacturers, airline, importer
Seller of an underlying
Famer, equity investor, exporter
2
The Buyers Perspective
A buyer that faces price risk on an i
FINA 3402 Derivative Securities
Chapter 7
Swaps
Text Book Ch 7.1,7.3 7.4 7.5-7.7
1
Where are we now?
Derivatives
Forward (F)
and Futures (f)
Swaps
Options
A sequence of forwards
2
Introduction to Swaps
Two parties exchange recurring payments, commodity
,
Speculation as A Fine Art by Dickson G. Watts
What is Speculation?
Is speculation right? It may be questioned, tried by the highest standards, whether any trade
where an exact equivalent is not given can be right. But as society is now organized speculati
The Greek Letters Risk
1
Basic (Market) Risk Measures
Basic factors that affect option price:
1.
Stock price: Delta ()
2.
Delta: Gamma ()
3.
Vega: Volatility
4.
Rho: Risk free rate ()
5.
Theta: Time to maturity ()
2
Example
A bank has sold for a European
Topic 8 Introduction to Binomial
Option Pricing
1
Assumptions
1. No transaction cost
2. Stock can be short easily without costs
3. All trading profits are subject to the same tax rate
(or no tax rate)
4. Borrowing and lending are possible at the risk free
Topic A2: Secret of Butterflies
Suppose there are as many strikes as there are possible
final stock prices (e.g. one every $ 0.01=).
What does the payoff look like if we buy 100 (or 1/ )
butterflies?
(1/ ) [c(K - ) - 2c(K) + c(K + )]
=100 [c(K 0.01 )
Topic 9b
Applications of the Binomial Model
1
Introduction
Extend the binomial model to price a variety of
complex derivatives. This isn't just an exercise. For
some of these options, the binomial model is actually
the best method of deriving no-arbitrag
Topic 10 Black-Scholes Model
Assumptions
Key elements
Intuition:
dynamic replicating
Introducing implied volatility
risk neutral probability
1
Notation
Notation:
S(t): stock (underlying) price at t
K: strike price
T-t: time to maturity
r: annualize
TA1: Option and Stock Market
1
Information
If you have private information about a stock,
which market you would like to trade, options
or stocks?
2
Information
Jun and Poteshman (2006) The Information in Optio
n Volume for Future Stock Prices Review of
Topic 11 Applications of BS Formula
1
Outline
European options with cash flows to the
underlying
Options on stock indices
Options on foreign currencies
Options on futures
American options
2
Basic Idea
The original BS formula for a non-dividend Europ
Topic 8 Option Strategies
1
Three Alternative Strategies
Take a position in the option and the underlying
Take a position in 2 or more options of the same class (calls
or puts) (spread)
Combination: Take a position in a mixture of calls & puts
(straddl