Econ 732 Derivatives II
Lecture Notes
Professor Man-lui Lau
2
I.
A Model of the Behavior of Stock Price (Chapter 12)
Normal distribution
1
1 x 2
f ( x , 2 )
exp[ (
) ]
2
2
Standard normal distribution
1
x2
f ( x 0,1)
exp( )
2
2
Properties of normal dis
Exotic Options (Chapter 22)
Derivatives with more complicated payoffs than the standard European or American calls and puts are
called exotic options.
Most exotic options are traded in the over-the-counter market and have been designed to meet
particular
Econ 732-21 Derivatives II
Lau
6/21/10
Final Examination
Instructions:
1.
Time allowed:
3.5 hours
2.
Answer the questions in detail.
1)
Using IBM as an example, write a story where it is appropriate to get into a long position in a
call on a call option.
Econ 732-21 Derivatives II
Problem Set IV
1.
Lau
Due: 6/7/10
(20 points) Consider a situation when the cash price (per $100 face value) of a T-bill maturing
in 150 days is $96.00. The cash futures price for a 90-day T-bill futures contract matures in 60
d
Econ 732-21 Derivatives II
Final Examination
Lau
10/8/10
Instructions:
1.
Time allowed:
3.5 hours
2.
Answer the questions in detail.
1.
(20 points) A fund manager has a well-diversified portfolio that mirrors the performance of
the S&P500 and is worth $10
Econ 732-21 Derivatives II
Problem Set II
Lau
Due: 5/24/10
Instructions:
1.
Answer all questions.
2.
Please form study group of up to 3 persons and work on the problem set.
3.
Show your formulas and steps clearly.
4.
No Excel spreadsheet.
1.
(20 points) A
Econ 732-21 Derivatives II
Problem Set V
1.
Lau
Due: 6/14/10
(20 points) Suppose that, under the terms of a swap, a financial institution has agreed to pay
6-month LIBOR and receive 11% per annum (with semiannual compounding) on a notional
principal of $1
Econ 732-21 Derivatives II
Lau
Due: 5/31/10
Problem Set III
Instructions:
1.
Answer all questions.
2.
Please form study group of up to 3 persons and work on the problem set.
3.
Show your formulas and steps clearly.
4.
No excel file will be accepted.
Class
Econ 732-21 Derivatives II
Problem Set I
Lau
Due: 5/17/10
Instructions:
1.
Answer all questions.
2.
Please form study group of up to 3 persons and work on the problem set.
3.
Show your formulas and steps clearly.
1.
A bank has written 100 5-month European