Topic 10 Activities
1.
You are a fund manager for net-wealth clients. One of your clients expects short-term
interest rates to remain low over the coming year and expects equities to offer a
significantly higher return. The investor wants to shift some fu

OPTIONS, FUTURES & RISK MANAGEMENT
Practice Examination Paper
Solutions Guide
SECTION A
15 Multiple Choice Questions [30 marks] 2 marks each
1.
d
2.
b
3.
c
4.
b
5.
a
6.
e
7.
a
8.
a
9.
b
10.
a
11.
e
12.
d
13.
d
14.
a
15.
b
SECTION B
3 Long-Answer Questions

Topic 9 Activities
1.
Why do you assume that there is a zero cost of carry when pricing futures
options?
2.
What is the lower bound of a European foreign currency call if the spot rate is
$2.25, the domestic interest rate is 5.5%, the foreign interest rat

SAMPLE EXAMINATION PAPER
Solutions Guide
SECTION A
15 Multiple Choice Questions
1.
c
2.
c
3.
c
4.
a
5.
c
6.
d
7.
e
8.
d
9.
a
10.
a
11.
b
12.
b
13.
e
14.
e
15.
b
[30 marks] 2 marks each
SECTION B
4 Long-Answer questions [40 marks]
Question 1 [10 marks]
(a)

Practice Examination Paper
OPTIONS, FUTURES & RISK MANAGEMENT
CORPFIN
Official Reading Time:
Writing Time:
10 mins
180 mins
Total Duration
190 mins
Instructions to Candidate:
1.
Answer ALL questions.
2.
This is an Open Book examination. You should answer

Topic 8
Options Strategies and Risk
Management for Individuals
Terminology
Basic Positions
(Covered Calls, Protective Puts and Synthetic Options)
Advanced Techniques
(Spreads and Straddles)
The University of Adelaide
G.Tan+R.Zurbrugg
1
Terminology and Not

Derivatives
Topic 7A Activities
1.
What are the two primary components that make up a stochastic process?
2.
Write down the formula for a Markov process. If stocks follow a Markov process,
what does this imply for technical trading rules?
3.
Why can we ca

Topic 7
The Black-Scholes Option
Pricing Model
Modelling Stock Price Behaviour
Partial Derivation of the Black-Scholes Differential Equation
Calculating Using the B-S Model
American Options and Dividends
Estimating Volatility
Put Option Pricing
The Greeks

Topic 7B Activities
1.
When looking at an option quoted in the market, you notice that the implied volatility
of the option is much higher than the historical volatility you have just calculated.
What can you do to profit from this information?
2.
Is it r

Topic 6
The Binomial Option Pricing Model
Single and Multi-Period Discrete Call Option Pricing
Pricing Puts
Binomial Pricing with American Options
Numerical Computation of Binomial Models
The University of Adelaide G.Tan+R.Zurbrugg
1
One Period Model
$13

7b5ac525ad945ffae835494664ddf17d888ef3f2.xls
BLACK-SCHOLES & BINOMIAL
OPTION PRICING MODELS
bsbin2.xls
Written
Written by
by Don
Don M.
M. Chance,
Chance, [email protected][email protected]
http:/www.cob.vt.edu/finance/faculty/dmc
http:/www.cob.vt.edu/finance/faculty/

Supplementary Answer
TOPIC 8
1. Which of the following statements about short selling is TRUE?
A: A short position may be hedged by writing call options.
B: A short position may be hedged by purchasing call options.
C: Short sellers may be subject to marg

Topic 8 Activities
1.
It is said that a protective put is very much like an insurance policy. What would the
exercise price be represented as in a standard insurance policy?
2.
What are the advantages and disadvantages of closing out a held call before th

SUPPLEMENTRY ANSWERS
TOPIC 10
1. CFA Examination Level III
The World Ecosystem Consortium (WEC) pension trust holds $100 million in longterm U.S. Treasury bonds. To reduce interest rate risk, you, as an independent advisor
to the WEC, suggest that the tru

Topic 9
Options on Futures, Currency Derivatives and
Exotic Options
Pricing Options on Futures
Triangular Arbitrage and Interest Rate Parity
Pricing Currency Derivatives
Some Popular Exotic Options
1
Introduction
Pricing more advanced futures and options

Topic 10
Equity, Interest Rate
and Currency Swaps
What are Swaps?
Equity Swaps
Interest Rate Swaps
Currency Swaps
Taxation Treatment
An Overview of Swaps
Agreement between two parties counterparties
exchange a series of cash flows on predetermined dates

Student Name _
Student Number _
Signature
_
UNDERGRADUATE
Mid-semester Test Paper - Semester 1, April 2014
1042 47
OP T IO N S, F UT U R E S AN D RI S K M A NA G EM E NT I II
CO R PF I N 3 50 2
LECTURER: GARY TAN
Reading Time:
Writing Time:
5 m in s
60 m

Page 1 of 12
Student Name _
Student ID
_
Signature
_
Mid-semester Test Paper
Semester 2, September 2014
OPTIONS, FUTURES & RISK MANAGEMENT III
LE CT UR ER: SH AN L I
Reading Time:
Writing Time:
5 mins
60 mins
Total Duration
65 mins
Instructions to Candida

Volatility Arbitrage
ANZ Last Sale Price $15.74 (5th June)
Series
Aug 01
Ex
Price
Bid
16.00
.47
Ask
.57
Last
Sale
Vol
000s
Open
Int
Implied
Volatility Delta
Buyer
Seller
.47
216
30
16.21
19.35
.51
Annual %
Return
14.02
1) You wake up one morning and have

Topic 6 Activities
1.
How does the binomial model account for volatility in the stock?
2.
When would you account for early exercise of an option? How do you do it within a
binomial framework?
3.
See if you can apply the binomial model to your selected sha

Topic 5
Basic Option Valuation
Standard Notation
Option Boundaries
Factors Determining Option Value
Put-Call Value
Elementary Pricing of a Call
The University of Adelaide G.Tan+R.Zurbrugg
1
Standard Notation
S0
X
T
r
~ stock price
~ exercise price
~ time

END-OF-CHAPTER QUESTIONS AND PROBLEMS
Chapter 1
1. Business risk is the risk associated with a particular line of business, whereas financial risk is the risk associated with
stock prices, exchange rates, interest rates and commodity prices. An example wo

Option exam paper
1, in the binomial model, if an option has no chance of expiring out-of-the money, the hedge ratio will be
a.
b.
c.
d.
e.
0.5
Infinite
1
0
None of the above
2, when the number of time periods in a binomial model is large, what happens to

Intrinsic Value of American Call Lower Bound of European Foreign Currency Put
045mm) 2 MaxULSu X) pe(s.,r,x) 2 Max[0,X(l + r) T sa (1 + p)_T]
Maximum Spread of European Calls Put-Call Parity- of Foreign Currency Options
(X2 mm + r)T 2 ce(sn,T,X1) Cetsomxz

Guidelines for OFRM III Assignment 1 (20%)
It is vitally important that you start collecting daily prices for stocks and options
immediately so that you have the required data to work on when you start writing your
assignment. You may find stock and optio

What are derivatives?
Derivatives
Options
An option is a contract
between two parties
providing the buyer the
right, but not the
obligation, to buy / sell a
quantity of some
underlying asset at a
particular price on or
before a specified date.
A derivativ