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
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:
/
/
/
/
Section:
/
/
/
/
/
/
_
Answer all questions in the space provided.
Points
PART I
(Out of)
22.5
PART II
34.5
TO
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
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
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
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
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
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
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
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
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
MGFC30H  Introduction to Derivatives Markets
Instructor:
Office:
Office hrs:
Phone:
Prof. Jason Z. Wei
IC 372
MO 34:30pm, WE 56pm
4162877332
Sept. Dec., 2016
L01: WE 11am1pm, IC 212
L02: WE
35pm, IC204
Email: wei@utsc.utoronto.ca
COURSE DESCRIPTION
Notes on optimal hedge ratio
I. Introduction
Ideally, the amount of futures used to hedge should be the same as the amount of the asset in question.
For example, if you need to hedge 200 tons of soybeans, then you should enter into futures contracts to
se
Group membership, MGFC30 (September 2016)
Group Name: zhaoqilingyang
Group Name: AlphaBetaTheta
Zhao Huang (L01)
Yang Ling (L01)
Zitong Zeng (L02)
Yifan Ivan Zhang (L02)
Group Name: Trade4theFuture
Group Name: Ace the Market
Kia Shu Xia Allison Chen (L02)
Bullet Point Review for the Course
Note: This is only a brief review in bullet points. It does not cover the details of each topic. All
the formulas and conceptual elements of each point have been covered in class. It is the
students= responsibility to en
Is there a butterfly spread with the maximum profit?
A butterfly spread consists of two long calls with exercise prices X 1 and X3, and two short calls with an
exercise price X2 = (X1 + X3)/2. The payoff looks like the following:
The highest net payoff oc
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
and
and a bear spread compose
Midterm, MGFC30
Date: October 31 (Monday) Halloween
Time: 57pm
Place: SW 309
Coverage: up to and including trading strategies.
Format: multiple choice and calculation questions. The latter are similar to
assignment questions. Multiple choice questions f
Fundaments of Futures and Options Markets
Introduction: Chapter 1
 Derivatives are traded on exchanges and in overthecounter (OTC) markets.
 Two main products trading on exchanges:
o Futures
o Options
1.1 Futures Contracts
 A futures contract is an a
MGFC30
Introduction to Derivatives Markets
Midterm Examination
March 4, 2016
Prof. Jason Z. Wei
110 minutes
Student Name:
Student Number:
/
/
/
/
Section:
_
/
/
/
/
/
/
Answer all questions in the space provided.
Points
PART I
(Out of)
24.0
PART II
34.0
T
VI. Exotic and Innovative Options

J. Wei, Department of Management,
UTSC
Rangeforward contract
Chooser option
Barrier option
Lookback option
Shout option
Asian option
Option to exchange one asset for another
Innovative swaps
Weather derivatives
MGFC30