Assignment 2 (MGFC30, 2016)
SOLUTIONS
1.
2.
a.
b.
c.
3.
a.
First calculate the price changes and then regress changes in spot price on changes on
futures price. The regression coefficient is the optimal hedge ratio. For daily data, it is
0.2624, and for w
Assignment 4 (MGFC30)
Due Date: March 30, 2016 (beginning of class)
(This assignment must be completed individually)
1.
Please go to Yahoo Finance (http:/finance.yahoo.com/)and download the 2013 and
2014 prices for Apple with ticker AAPL. Please download
Assignment 3 (MGFC30)
Due Date: March 9, 2016 (beginning of class)
(This assignment must be completed individually)
1.
Suppose you are being interviewed by a trading desk at a major brokerage house. The
interviewer presents the following option informatio
Note to the Second Assignment
Although this assignment is not for handin, you are responsible for all
the questions as far as the midterm is concerned. The same applies to
the extra exercise questions.
0
Professor Jason Z. Wei, University of Toronto
Ass
Assignment 1 (MGFC30, 2016)
SOLUTIONS
1.
a)
First calculate daily gains/losses for all days. Since the margin account balance is equal
to the maintenance margin, the total loss of the first three days must be equal to the
difference between the two margin
Assignment 1 (MGFC30)
Due Date: February 3, 2016 (beginning of class)
(This assignment must be completed individually)
1.
(Question of Fall 2014 midterm)
Echo Mining entered into 10 futures contracts to sell copper at $4.25/lb. Each contract was for
25,0
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Sample Test1
A. Mazaheri
Instructions: This is a closed book examination. You are allowed one side of a standard paper and the
use of a calculator. Sho
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Sample Term Test2
A. Mazaheri
Instructions: This is a closed book examination. You are allowed one side of a one 4x6" crib card and the
use of a calcul
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC35: Introduction to Derivatives Markets
Problem Set 5
_
1. Suppose company A and B encounter the following borrowing terms:
Fixed %
3.6
4.0
Company A
Company B
Floating %
LIBOR + 1
LIBOR + 2
A
Extra Exercise Questions, MGFC30
(At the end of each question, it is indicated when you should be
able to tackle the question.)
1. A box spread is a combination of a bull spread composed of two call options
with strike prices X 1 and X 2 and a bear spread
MGFC30
Introduction to Derivatives Markets
Midterm Examination
Oct 22, 2014
Prof. Jason Z. Wei
110 minutes
Student Name:
Student Number:
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/
/
Section:
/
/
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_
Answer all questions in the space provided.
Points
PART I
(Out of)
22.5
PART II
34.5
TO
IV. Binomial Trees
 One Period Binomial Tree
 TwoPeriod Binomial Tree
 MultiPeriod Binomial Tree
 Binomial Tree for Options on
Indexes, Currencies and Futures
 Binomial Tree for a Dividend Paying Stock
J. Wei, Department of Management, UTSC
MGFC30
Is there a butterfly spread with the maximum profit?
A butterfly spread consists of two long calls with exercise prices X1 and X3,
and two short calls with an exercise price X2 = (X1 + X3)/2. The payoff looks
like the following:
The highest net payoff occ
II. Forwards and Futures



Definitions
Purpose of Futures Markets
Structure and Specification of Futures Contracts
Operation of Margins
Forward and Futures Price Determination
Preliminaries
Cost of Carry Model
Forward on a Security without Cash Inc
VII. Applications and Review
 Equity and debt as options
 Embedded options in Investment products
 Review
J. Wei, Department of Management,
UTSC
MGFC30
1
Bullet Point Review of the Course
On the intranet
J. Wei, Department of Management,
UTSC
MGFC30
2
I. INTRODUCTION
J. Wei, Department of Management,
UTSC
Definition of Derivative Securities
Underlying Assets
Exchanges
Market Participants
MGFC30
1
Definition of a Derivative Security
A derivative security is a security whose value depends
on the value of
Help on Binomial Option Pricing
Example: suppose todays stock price is $20, and it may go up to $25 or down to $16 in 3
months. The riskfree interest rate is 5% p.a. What is the value of a European call with an
exercise price of $18? What is the value of
1. Why do eqT units of stock index grow to one unit at time T if the continuous dividend
yield is q? In other words, why does eqTS grow to ST at time T?
First, recall that in the case of a savings account with continuous compounding, the balance at
time
Explanation of clean and dirty bond prices
To begin, a clean price is not washed out of a dirty price . "Clean" here refers to the fact that the bond
price quoted this way is free of the impact of the accrued interest earned between last coupon and the
ti
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Problem Set 6
1. The following are European call and put prices for a stock on November 9 (today):
Strike Price
65
Last transaction Prices ($)
Calls
Dec
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Problem Set 8
_
1.
a) In the riskneutral method, we price options by discounting their riskneutral expected future
payoffs with the riskfree interest
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Problem SET 7
1. On Friday November 17, 201X XYZs stock price closed at 25. The following option prices
were quoted as:
Strike
22.50
25
27.50
30
Expirat
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Problem Set 11
_
1. Suppose DD stock price is $65, interest rate is 5%, we are looking to price at the money
options for a maturity of 2 months. Volatil
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Problem Set 10
_
1. Answer the following two questions:
a) We know from prior problem sets that the value of the forward contract is cp. Use that
infor
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Problem Set 9
_
1. Short Questions
a) In the BSM setup we assume the stock price follows normal distribution. True, False, Uncertain,
explain.
b) Accord
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Problem Set 3
_
Supplement to Lecture4
1. Suppose a oneyearlong forward contract on a nondividendpaying stock is entered into
when the stock price
UNIVERSITY OF TORONTO SCARBOROUGH
DEPARTMENT OF MANAGEMENT
MGFC30: Introduction to Derivatives Markets
Problem Set 4
_
Supplement to Lecture5
1. As a bond portfolio manager you have just sold 10,000 unit of 10 year zero coupon bonds
with a face value of