FINUY3233A: DERIVATIVES AND THE OPTIONS MARKET
Assignment 2 Answers
Norris L. Larrymore, Ph.D.
Friday, October 9, 2014
Problem 1
The three-month interest rates in the United Kingdom and the United States with continuous
compounding are 1% and 4% per annum

Chapter 29
Interest Rate Derivatives:
The Standard Market
Models
Options, Futures, and Other Derivatives, 9th Edition,
Copyright John C. Hull 2014
1
The Complications in Valuing
Interest Rate Derivatives (page 673)
We need a whole term structure to define

ASSIGNMENT 1 ANSWERS
FINUY3233A
NAME:
1. [Weather Derivatives] A merchant shipping company has found a new cost
effective route from the Atlantic Ocean to the Pacific Ocean across the artic North
Pole. Their need to hire icebreakers depends on the severit

ASSIGNMENT 1
FINUY3233A
NAME:
1. [Weather Derivatives] A merchant shipping company has found a new cost
effective route from the Atlantic Ocean to the Pacific Ocean across the artic North
Pole. Their need to hire icebreakers depends on the severity of the

Assignment 2
FINUY3233A
NAME:
Exchange Rates: New York Closing Snapshot
Thursday, April 16, 2015
U.S.-dollar foreign-exchange rates in late New York trading
GBPUSD
Country/currency
Thurs
US$ VS. % CHG
Wed
1-Day
YTD
USDGBP
Thurs
Wed
UK pound
1.6187
1.6163

Binomial Option
11/2/15 7:27 AM
Binomial Option Pricing: Basic Concepts
A One-Period Binomial Tree:
Binomial option pricing enables us to determine the price of an option, given
the characteristics of the stock or other underlying asset
The binomial optio

Black Scholes
11/7/15 1:16 AM
Consider an option on a non-dividend-paying stock when the stock price is $30, the exercise
price is $29, the risk-free interest rate is 5%, the volatility is 25% per annum, and the time to
maturity is 4 months.[Use Excel Nor

1. Default intensity
Suppose ABC, Inc. plans to issue a 3 year bond. As an investor you want ABCs survival
probability to exceed three years. We assume that no new information arrives during the
first year and that the default intensity is uncertain

FIN-UY 3233-A: DERIVATIVES AND THE OPTIONS MARKET
Norris L. Larrymore, Ph.D.
Friday, December 4, 2015
Problem 1
Cost Saving SWAP We have a swap between an AAA-rated borrower and a lower creditworthy
borrower with a BBB rating. As illustrated in Table 1, a

Chapter 22
Value at Risk
Options, Futures, and Other Derivatives, 9th
Edition, Copyright John C. Hull 2014
1
The Question Being Asked in VaR
What loss level is such that we are X%
confident it will not be exceeded in N
business days?
Options, Futures, and