UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Problem Set 1 (Supplemental Questions)
_
_
1. Explain the similarities and differences between forwards and futures contract on the same asset. You
m
Rotman Portfolio Manager - Quick Start Guide
Class Code: MGTC71
Class Password: money
(Fill this out with the information provided to you in class.)
Getting Started
1. Direct your browser to http:/rpm.rotman.utoronto.ca and download/run the RPM Installati
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Problem Set 2 (Supplemental Questions)
_
Interest Rate & Interest Rate Futures:
Problem-1
A firm entered into a forward rate agreement with a bank. T
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Test-2 Supplement Questions (Option Basics + Option Strategy)
Problem-1 [6 Points]: Answer the following short questions.
a) [3 Points] An American c
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Test-2 Supplement Questions (Option Basics + Option Strategy)
Problem-1 [10 Points]: Answer the following short questions.
a) [5 Points] Use a graph
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Problem Set 5
_
1. Use the Back-Scholes formula to prove the followings:
a) Consider a European call option and a European put option with the same s
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Problem Set 4
_
1.
a) In the risk-neutral method, we price options by discounting their risk-neutral expected future payoffs with the
risk-free inter
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Problem SET 3
1.The following are European call and put prices for a stock on November 9 (today):
Strike Price
65
Last transaction Prices ($)
Calls
D
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Problem Set 2 (Supplemental Questions)
_
Interest Rate & Interest Rate Futures:
Problem-1
A firm entered into a forward rate agreement with a bank. T
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Problem Set 1 (Supplemental Questions)
_
1.
Explain the similarities and differences between forwards and futures contract on the same asset. You may
Definition
Any derivatives that is not European or American
vanilla call or put on a single underlying S.
- Some of these structured products have been
standardized and are traded by vanilla option
traders.
MGTC71-Lecture 12
Exotic Options
Packages
Com
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Winter 2011
Instructor:
Office Hours:
Telephone:
E-mail Address:
Web Page
Dr. Ata Mazaheri
MW382, M: 1-3 W: 1-3, Th: 2-4
416-287-7348
ata.mazaheri@ut
European Options on Stocks Providing a
Dividend Yield
We get the same probability distribution
for the stock price at time T in each of
the following cases:
1. The stock starts at price S0 and
provides a dividend yield = q
2. The stock starts at price S0e
The Black-Scholes-Merton Random Walk
Assumption
MGTC71-Lecture 10
Consider a stock whose price is S
In a short period of time of length t the
return on the stock (S/S) is assumed to be
normal with mean t and standard
deviation
t
The Black-Scholes-Merto
A Simple Binomial Model
MGTC71-Lecture 9
A stock price is currently $20
In three months it will be either $22 or $18
Binomial Trees
Stock Price = $22
Ata Mazaheri
Stock price = $20
Stock Price = $18
1
1
2
2
Setting Up a Riskless Portfolio
A Call Option
Types of Strategies
MGTC71-Lecture 8
Take a position in the option and the
underlying
Take a position in 2 or more options of
the same type (A spread)
Combination: Take a position in a
mixture of calls & puts (A combination)
Trading Strategies
Ata Maza
Review of Option Types
ECMC71-Lecture 7
A call is an option to buy
A put is an option to sell
A European option can be exercised
only at the end of its life
An American option can be exercised at
any time
Options Markets: Mechanisms and Properties
Ata
MGTC71-Lecture 6
SWAPS
Ata Mazaheri
1
Outline
Swaps
Valuing Plain Vanilla Interest Swaps
Valuing Swaps after Origination
2
Nature of Swaps
A swap is an agreement to exchange
cash flows at specified future times
according to certain specified rules
3
An
MGTC71-Lecture 5
Interest Rate Futures
Ata Mazaheri
1
Day Count Conventions
in the U.S.
Treasury Bonds: Actual/Actual (in period)
Corporate Bonds: 30/360
Money Market Instruments: Actual/360
2
Characteristics of U.S. Treasury Bills
A 182-day T-bill has a
MGTC71-Lecture 4
Determination of Forwards and Futures
Markets
Ata Mazaheri
1
Consumption vs Investment Assets
Investment assets are assets held by
significant numbers of people purely for
investment purposes (Examples: gold, silver)
Consumption assets
MGTC71-Lecture 3
Interest Rates & Duration
Ata Mazaheri
1
Types of Rates
Treasury rates
LIBOR rates
Repo rates
2
Measuring Interest Rates
The compounding frequency used for
an interest rate is the unit of
measurement
The difference between quarterly
MGTC71 - Lecture 2
Futures Markets
Hedging Strategies Using Futures
Ata Mazaheri
1
Lecture Outline
Futures Contracts: Mechanics
Futures Market: As a tool for Hedging
2
Futures Contracts
Available on a wide range of underlyings
Exchange traded
Specifi
MGTC71- Lecture 1
Introduction
Futures Markets
Ata Mazaheri
1
Lecture Outline
Derivatives: the Definition
Types of Derivatives
-Forwards, Futures, Swaps, Options
- Definition
- Terminology
- Examples
2
The Nature of Derivatives
A derivative is an instru
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Sample Test-1
Instructions: This is a closed book examination. You are allowed One side of one 8 11 page with handwritten
notes and/or formulae. Show
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Sample Test-1
Instructions: This is a closed book examination. You are allowed One side of one 8 11 page with
handwritten notes and/or formulae. Show
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Term Test-2 (Solutions)
A. Mazaheri
Instructions: This is a closed book examination. You are allowed one side of a one 4x6" crib card and the
use of a c
UNIVERSITY OF TORONTO AT SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGTC71: Introduction to Derivatives Markets
Term Test-1 (Solutions)
A. Mazaheri
Instructions: This is a closed book examination. You are allowed one side of a one 4x6" crib card and the
use of