CONFIDENTIAL
SEAT NUMBER: _
SURNAME: _
FIRST NAMES: _
SID: _
Business School
Discipline of Finance
FINC3011 International Financial Management
2017 Semester 1
Practice TEST 2
INSTRUCTIONS:
There are 25 questions. All questions are to be answered. Choose
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Questions: Week-05
1. Demonstrate why the stochastic discount factor, m0,1 , has the property
Ecfw_m0,1 = 1/Rf
where Rf is the gross return on a risk free asset.
2. Consider a single
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Questions: Week-09
1. Suppose x = 100, u = 1.1, d = 0.9, r = 0.05, = 0. Price the following
options with expiry T = 2 steps:
(a) European call with k = 95.
(b) European put with k = 95
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Solutions: Week-09
1. Suppose x = 100, u = 1.1, d = 0.9, r = 0.05, = 0. Price the following
options with expiry T = 2 steps:
(a)
(b)
(c)
(d)
European
European
American
American
call
pu
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Solutions: Week-08
Consider the discrete 1 period market M with parameters:
1 3 1
1
ST = 1 1 2 ; S0 = 2
2 3 4
c
1. Show that M is complete.
2. Explain what is meant by a complete mark
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Questions: Week-11
1. Show that if the stock price at T is uniformly distributed on some continuous finite interval [0, A], then the price of a strike k European call option
can be exp
FINC6005 Asset Pricing
Binomial Options Pricing Model
Dr. Hamish Malloch
The University of Sydney
Page 1
Introduction
To obtain the arbitrage-free price of a simple derivative
security with payoff function V(X,T) = F(X), we can use the
FTAP formula:
V0 V
FINC6005 Asset Pricing
Black-Scholes Model II
Dr. Hamish Malloch
The University of Sydney
Page 1
Introduction
Last week we focussed our attention on deriving the formulas
for various options prices under the Black-Scholes framework
This was made simple
FINC6005 Asset Pricing
Black-Scholes Model I
Dr. Hamish Malloch
The University of Sydney
Page 1
Introduction
In the next two lectures we will cover the Black-Scholes options
pricing model
This is the first truly successful model for valuing options and
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Solutions: Week-12
1. Consider the log contract with payoff function VT = log(XT /k) at time
T , where k > 0 is constant.
(a) Describe the obligations of the holder of this contract at
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Questions: Week-05
1. Demonstrate why the stochastic discount factor, m0,1 , has the property
Ecfw_m0,1 = 1/Rf
where Rf is the gross return on a risk free asset.
Solution
Recall from
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Solutions: Week-10
1. Evaluate Ecfw_ecZ I(Z > a) where c is a constant and Z N (0, 1).
Solution
This is a straightforward application of the Gaussian Shift Theorem (GST).
1
2
1
2
Ecfw_
FINC6005 Asset Pricing
State Contingent Asset Pricing
and Risk Neutral Valuation
Dr. Hamish Malloch
The University of Sydney
Page 1
Introduction
This lecture extends what we have already covered in our work
on stochastic discount factors
Our approach ho
FINC6005 Asset Pricing
Investment/Consumption and
Stochastic Discount Factors
Dr. Hamish Malloch
The University of Sydney
Page 1
Introduction
Last week we examined a classic asset pricing model, the
CAPM
The CAPM rests on many assumptions, one of which
FINC6005 Asset Pricing
Stochastic Calculus
Dr. Hamish Malloch
The University of Sydney
Page 1
Introduction
In the previous lecture we examined a model for pricing
options which specified, in a very simple way, how the
underlying asset evolved through tim
FINC6005 Asset Pricing
Course Overview & Maths/Stats
Dr. Hamish Malloch
The University of Sydney
Page 1
Administrative Details
Lecturer/Course coordinator:
Dr. Hamish Malloch
Economics & Business Building Room 509
Consultation hour: Tuesday 3-4pm
Contact
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Questions: Week-08
Consider the discrete 1 period market M with parameters:
1 3 1
1
ST = 1 1 2 ; S0 = 2
2 3 4
c
1. Show that M is complete.
2. Explain what is meant by a complete mark
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Questions: Week-12
1. Consider the log contract with payoff function VT = log(XT /k) at time
T , where k > 0 is constant.
(a) Describe the obligations of the holder of this contract at
Lecture - 3
Portfolio Theory Part I
FINC6005 | Advanced Asset Pricing
Hamish Malloch
BUSINESS
SCHOOL
Mean-Variance Portfolio Theory
MV portfolio theory stems from the work of Harry Markowitz
who received the Nobel prize for Economics in 1990
Assumptions
Lecture 2
Utility Theory and Risk Aversion
FINC6005 | Advanced Asset Pricing
Hamish Malloch
BUSINESS
SCHOOL
Riskless Securities
Before we delve into utility theory, we will attempt to provide
motivation for this type of theory
Consider a riskless securi
Lecture 4
Portfolio Theory Part II
FINC6005 | Advanced Asset Pricing
Hamish Malloch
BUSINESS
SCHOOL
MV-Portfolio Theory
In this weeks lecture we shall derive the optimal parameters
for a fully invested portfolio of n assets, where n 3.
There will be no
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Questions: Week-02
1. Show that the certainty equivalent price of a risky asset is invariant under
a positive linear transformation of the utility function.
2. Determine the risk-neutr
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Questions: Week-01
1. Compute the expected value for a single roll of a single fair die. Perform
the same computation for the log of the roll of a fair single die.
2. Evaluate the foll
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Solutions: Week-03
1. Prove (a, c, d) > 0.
Hint: consider y0 1 y with y = (r (b/a)1).
Solution:
If is positive definite then so is its inverse. Thus by the definition of a
positive def
Discipline of Finance
FINC6005
Advanced Asset Pricing
S1-2017
Tutorial Solutions: Week-02
1. Prove the utility theorem: the certainty equivalent price of a risky asset
is invariant under a positive linear transformation of the utility function.
Solution: