Hedging Strategies Using
Futures
Chapter 3
3.1
Example
of SH:
SH involves a short position in futures contracts. It is
appropriate when you own an asset and expect to sell it in
the future
Ex: On May 15, oil producer has just negotiated a contract to
sel

298
CHAPTER 13
x
APPENDIX .
DERIVATION OF THE ﬁfAcK—SCHOLEs—MERtQN
OPTION-PRICING FORMULA FROM A BINoMIAL TREE
One way of deriving the famous Black—Scholes—Merton result for valuing a European
option on a non-dividend-paying stock is by allowing the numbe

ADM 4351, Fall 2014, Quiz #2 (15 points total) - grading key
Time allowed: 75 minutes
Name:_
Student i.d.:_
General Rules:
The School's regulations prohibit students leaving the classroom during the first hour and during
the last 15 minutes of the test. W

ADM 4351, Fall 2014, Quiz #2 (15 points total) - grading key
Time allowed: 75 minutes
Name:_
Student i.d.:_
General Rules:
The School's regulations prohibit students leaving the classroom during the first hour and during
the last 15 minutes of the test. W

ADM 4351, Winter 2015, Quiz #2 (15 points total)
Time allowed: 80 minutes
Name:_
Student i.d.:_
General Rules:
The School's regulations prohibit students leaving the classroom during the first hour and during
the last 15 minutes of the test. This means th

ADM 4351 Quiz #3 Fall 2014
Time allowed: 75 minutes
Name:_
Student i.d.:_
IMPORTANT:
Unless otherwise specified, all in interest rates are continuously compounded
Please, keep at least 6 decimal digits while performing your calculations
General Rules:
The

ADM 4351, Winter 2015, Quiz #3 (15 points total) - solutions
Time allowed: 90 minutes
Name:_
Student i.d.:_
General Rules:
The School's regulations prohibit students leaving the classroom during the first hour and during
the last 15 minutes of the test. W

ADM 4351, Fall 2015, Quiz #3 (15 points total) - grading key
Time allowed: 75 minutes
Name:_
Student i.d.:_
General Rules:
Always keep at least 5 decimal digits when performing your calculations and report at least 4
decimal digits in your answer!
All int

ADM 4351, Fall 2015, Quiz #1 (15 points total)
Name:_
Student i.d.:_
General Rules:
Pen/pencils, rulers and calculators are allowed. Everything else MUST be stored in the CLOSED
backpack placed ON THE FLOOR (NOT on the chair next to you and NOT on the tab

ADM 4351, Winter 2015, Quiz #2 (15 points total) - grading key
Time allowed: 75 minutes
Name:_
Student i.d.:_
General Rules:
All interest rates are continuously compounded unless specified otherwise
All bonds have a face value of $100 unless specified oth

ADM 4351, Winter 2016, Quiz #1 (15 points total)
Name:_
Student i.d.:_
Important:
All interest rates are continuously compounded unless specified otherwise
All bonds have a face value of $100 unless specified otherwise
All bonds have semiannual coupon pay

ADM 4351, Fall 2015, Quiz #3 (15 points total) - grading key
Time allowed: 75 minutes
Name:_
Student i.d.:_
General Rules:
All interest rates are continuously compounded unless specified otherwise
All bonds have a face value of $100 unless specified other

ADM 4351, Fall 2015, Quiz #2 (15 points total) - grading key
Time allowed: 75 minutes
Name:_
Student i.d.:_
General Rules:
Always keep at least 5 decimal digits when performing your calculations and report at least 4
decimal digits in your answer!
All int

Exam Solutions
ADM 4351: Options and Futures
December 17, 2015
Professor:
Yuri Khoroshilov
Duration: 3 hours
INSTRUCTIONS
1.
2.
3.
Books and notes are not permitted.
Calculators are permitted.
Answer in the space provided
NAME: _
STUDENT #: _
Statement of

* IAES 2006
Atlantic Economic Journal (2006)
DOI: 10.1007/s11293-006-9038-6
ANTHOLOGY
Prospect Theory and Small Payoffs:
An Experimental Study
ANNA DODONOVA* AND YURI KHOROSHILOV*
In the 1979_s paper [BProspect Theory: An Analysis of Decision under Risk,^

ADM 4351 Fall 2016, quiz 2 solutions
1) Assuming the expected future short-term interest rate is equal to the current short-term interest
rate, which the following statements follow from the liquidity-preference theory:
Statement 1: Forward interest rate

ADM 4351, Winter 2015, Quiz #3 (15 points total)
Time allowed: 80 minutes
Name:_
Student i.d.:_
General Rules:
The School's regulations prohibit students leaving the classroom during the first hour and during
the last 15 minutes of the test. Which means t

ADM 4351 Quiz #3 Fall 2014 sol
Time allowed: 75 minutes
Name:_
Student i.d.:_
IMPORTANT:
Unless otherwise specified, all in interest rates are continuously compounded
Please, keep at least 6 decimal digits while performing your calculations
General Rules:

Introduction
1.1
The Nature of Derivatives
A financial derivative is a security whose payoff
(and therefore the price) depends on the value of
an underlying security.
Typical underlying good or security:
Agricultural products: corn, soybeans, wheat, coffe

Determination of Forward
and Futures Prices
Chapter 5
5.1
Consumption vs Investment Assets
Investment
assets are assets held by
significant numbers of people purely for
investment purposes (Examples: gold,
stocks, bonds)
Consumption assets are assets he

Mechanics of Futures
Markets
Chapter 2
2.1
Futures market requirement
A simple Forward contract: On Sept 1, 2014 Alex
and Bob agreed that on Dec 1, 2014 Alex will buy
from Bob 100 Microsoft shares for $30 per share
Problems:
Credit risk: what if the pri

Mechanics of Options
Markets
Chapter 9
Types of Options
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
Option Positions
Long call (b

Effect of Variables on Option
Pricing
Variable
S0
X
T
r
D
c
+
?
+
+
p
+
?
+
+
C
+
+
+
+
P
+
+
+
+
Bounds for European Call and Put Option
S0 c S0 - Xe -rT
Xe -rT p Xe -rT - S0
c S 0 D Xe
rT
p D Xe rT S 0
Put-Call Parity
c p = S0 Xe -rT
c p = S0 D Xe -rT

Properties of Stock
Option Prices
chapter 10
Notation
c : European call option C : American Call option
price
p : European put option
price
S0 : Stock price today
X : Strike price
T : Life of option
: Volatility of stock
price
price
P : American Put

Trading Strategies
Involving Options
Chapter 11
Why do we need to know these
strategies?
Can create positions with unique risk and
return characteristics.
How to profit when stock prices move a great
deal or when they stagnate?
Three Alternative Strategie

Swaps
Chapter 7
7.1
Nature of Swaps
A swap is an agreement to exchange
cash flows at specified future times
according to certain specified rules
7.2
An Example of a Plain Vanilla
Interest Rate Swap
An
agreement by Microsoft to receive
6-month LIBOR & pay

Introduction to
Binomial Trees
A Simple Binomial Model
A stock price is currently $20
In three months it will be either $22 or $18
Risk-Free Rate is 12%
Stock Price = $22
Stock price = $20
Stock Price = $18
A Call Option
A 3-month call option on the st

ADM 4351 Quiz #3 Fall 2014 sol
Time allowed: 75 minutes
Name:_
Student i.d.:_
IMPORTANT:
Unless otherwise specified, all in interest rates are continuously compounded
Please, keep at least 6 decimal digits while performing your calculations
General Rules: