CHAPTER 17
The Greek Letters
Practice Questions
Problem 17.8.
What does it mean to assert that the theta of an option position is 0.1 when time is measured
in years? If a trader feels that neither a stock price nor its implied volatility will change,
what
CHAPTER 18
Binomial Trees in Practice
Practice Questions
Problem 18.8.
Consider an option that pays off the amount by which the final stock price exceeds the
average stock price achieved during the life of the option. Can this be valued from a binomial
tr
DerivaGem - Version 4.00f
For Excel 2000 and more recent versions of Excel
This is the Options Calculator Software that has been designed to
accompany John Hull's book:
"Fundamentals of Futures and
Options Markets" 9/E
Important: Do not forget to enable M
CHAPTER 21
Interest Rate Options
Practice Questions
Problem 21.8.
A bank uses Blacks model to price European bond options. Suppose that an implied price
volatility for a 5-year option on a bond maturing in 10 years is used to price a 9-year option
on the
CHAPTER 19
Volatility Smiles
Practice Questions
Problem 19.8.
A stock price is currently $20. Tomorrow, news is expected to be announced that will either
increase the price by $5 or decrease the price by $5. What are the problems in using Black
Scholes to
Financial Derivatives
Chapter 8: The Binomial
Model
George Ye
1
Outline
1.
The one-step binomial option pricing model
2.
Risk-Neutral Pricing Technique
3.
The two-step binomial option pricing
models
4.
Pricing American options
5.
The extension of the bino
CHAPTER 20
Value at Risk and Expected Shortfall
Practice Questions
Problem 20.8.
A company uses an EWMA model for forecasting volatility. It decides to change the
parameter from 0.95 to 0.85. Explain the likely impact on the forecasts.
2
Reducing from 0.9
CHAPTER 14
Employee Stock Options
Practice Questions
Problem 14.8.
Explain how you would do the analysis similar to that of Yermack and Lie to determine
whether the backdating of stock options was happening.
It would be necessary to look at returns on eac
Financial Derivatives
Chapter 4:
Pricing Forwards and Futures
George Ye
1
Outline
1.
Forwards and futures pricing: The cost of
carry model
2.
Valuing off-market forward contracts
3.
Stock index futures
4.
Currency futures
5.
Commodities futures
6.
Forward
Financial Derivatives
Chapter 9:
The Black-Scholes Model
George Ye
1
Outline:
1.
The Black-Scholes-Merton option pricing model
2.
Variables in the Black-Scholes-Merton Model
3.
To accommodate dividends
4.
The concepts of historical and implied volatility
DerivaGem - Version 4.00f
For Excel 2000 and more recent versions of Excel
Applications created with the Applications Builder Software
that accompanies John Hull's book:
"Fundamentals of Futures and
Options Markets" 9/E
Note: You should familiarize yourse
Financial Derivatives
Chapter 3: Futures
Hedging
George Ye
1
Outline
1.
Futures hedging: introduction
2.
Basis Risk
3.
Minimum variance hedge
4.
Beta hedge
Basic futures hedging
Long futures hedge:
Having a short position in an asset in
the spot market
DerivaGem - Version 4.00f
For Excel 2000 and more recent versions of Excel
This is the Options Calculator Software that has been designed to
accompany John Hull's book:
"Fundamentals of Futures and
Options Markets" 9/E
Important: Do not forget to enable M
DerivaGem - Version 4.00f
For Excel 2000 and more recent versions of Excel
Applications created with the Applications Builder Software
that accompanies John Hull's book:
"Fundamentals of Futures and
Options Markets" 9/E
Note: You should familiarize yourse
CHAPTER 16
Futures Options and Blacks Model
Practice Questions
Problem 16.8.
Suppose you buy a put option contract on October gold futures with a strike price of $1,200
per ounce. Each contract is for the delivery of 100 ounces. What happens if you exerci
Financial Derivatives
Chapter 5: Options
Markets
George Ye
1
Outline
1.
Types of options
2.
Option positions and payoffs
3.
Options trading in exchanges
4.
Options markets
5.
Trading options
1. Type of Options:
Call options:
The owner has the right, not o
Financial Derivatives
Chapter10 Options on Stock
Indices
and Currencies
George Ye
1
Outline:
1.
European Options on Stocks Paying
Dividend Yields
2.
Index options
3.
Currency options
1. European Options on Stocks
Paying
Dividend Yields
We get the same pro
DerivaGem - Version 4.00f
For Excel 2000 and more recent versions of Excel
Applications created with the Applications Builder Software
that accompanies John Hull's book:
"Fundamentals of Futures and
Options Markets" 9/E
Note: You should familiarize yourse
CHAPTER 23
Credit Derivatives
Practice Questions
Problem 23.8.
Suppose that the risk-free zero curve is flat at 7% per annum with continuous compounding
and that defaults can occur half way through each year in a new five-year credit default
swap. Suppose
CHAPTER 24
Weather, Energy, and Insurance Derivatives
Practice Questions
Problem 24.8.
HDD and CDD can be regarded as payoffs from options on temperature. Explain this
statement.
HDD is max(65 A 0) where A is the average of the maximum and minimum tempera
Beta
Index now
Index Level in Two Months
Return on Index in Two Months
Return on Index incl divs
Excess Return on Index
Excess Return on Portfolio
Return on Portfolio
Portfolio Gain
Futures Now
Futures in Two Months
Gain on Futures
Net Gain on Portfolio
0
Financial Derivatives
Chapter 11: Futures
Options
George Ye
1
Call options on futures
When a call futures option is exercised the
holder acquires
1.
2.
A long position in the futures
A cash amount equal to the excess of the
futures price over the strike p
Financial Derivatives
Chapter 1: Introduction
George Ye
1
Overview of Derivatives
A derivative is a financial instrument that
offers a return based on the return of some
other underlying asset.
Usually a derivatives contract specifies a price
for a trade
c12
Student: _
1. The current yield on a bond is equal to
A. annual interest payment divided by the current market price.
B. the yield to maturity.
C. annual interest divided by the par value.
D. the internal rate of return.
E. None of the options
2. If a
c23
Student: _
1. Which one of the following is not an objective of a stock mutual fund?
A. Maximization of capital gains.
B. Growth.
C. Growth and income.
D. Income and security.
E. None of these.
2. Which one of the following statements regarding open-e