CHAPTER 1
Introduction
Practice Questions
Problem 1.8.
Suppose you own 5,000 shares that are worth $25 each. How can put options be used to
provide you with insurance against a decline in the value of your holding over the next four
months?
You should buy
FINA 2204: Derivatives Products and Markets
Solutions to Tutorial 9
Problem 7.9
Companies X and Y have been offered the following rates per annum on a $5 million 10year investment:
Fixed rate
Floating rate
Company x:
8.0%
BBSW
Company y:
8.8%
BBSW
Company
FINA2204
Derivative Products and Markets
Lecture 5:
Options: Pricing II
Reading: Chapter 12
Overview of this lecture
I. Introduction
II. Expectation Pricing
III. Stock-Bond Replicating Portfolio
Valuation
IV. Stock-option Replicating Portfolio
Valuation
V
FINA2204
Derivative Products and Markets
Lecture 4:
Options: Pricing I
Reading: Chapter 13
Review Previous Lecture
Three alternative option trading
strategies:
Take a position in the option & the
underlying
Take a position in 2 or more options of the
s
FINA2204
Derivative Products and Markets
Lecture 6:
Introduction
Reading: Chapter 2
Overview of this lecture
I. Opening and closing futures positions
II. Specification of a futures contract
III. Convergence of futures price to spot price
IV. Operation of
Problem 5.9.
A one-year long forward contract on a non-dividend-paying stock is entered into when
the stock price is $40 and the risk-free rate of interest is 10% per annum with continuous
compounding.
a) What are the forward price and the initial value o
TABLE FOR N(X) WHEN X 2 0
The. table below shows values of 1170:) forxzf}. This table should be used 9
inferpolation. For example, '
N(0.6278) = N(0.62) + 0.78[N(0.63) —N(0.62)]
= 0.7324 + 0.73 x (0.73 57 — 0.73 24)
= 0.7350 '
.3: 0.00 0.01 0.02 0.03 0
CHAPTER 10
Properties of Stock Options
Practice Questions
Problem 10.8.
Explain why the arguments leading to putcall parity for European options cannot be used to
give a similar result for American options.
When early exercise is not possible, we can argu
CHAPTER 13
Valuing Stock Options: The Black-Scholes-Merton Model
Practice Questions
Problem 13.8.
A stock price is currently $40. Assume that the expected return from the stock is 15% and its
volatility is 25%. What is the probability distribution for the
CHAPTER 12
Introduction to Binomial Trees
Practice Questions
Problem 12.8.
Consider the situation in which stock price movements during the life of a European option
are governed by a two-step binomial tree. Explain why it is not possible to set up a posi
CHAPTER 3
Hedging Strategies Using Futures
Practice Questions
Problem 3.8.
In the Chicago Board of Trades corn futures contract, the following delivery months are
available: March, May, July, September, and December. State the contract that should be
used
UWA Business School
FINA2204 Derivative Products and Markets
Simulated Interbank Dealing Game Handbook
2016
Prepared By
Sirimon Treepongkaruna
1
Chapter 1: Introduction
1.1. Overview of this handbook
This Handbook serves as a guide to the simulated dealin
FINA2204
Derivative Products and Markets
Lecture 5:
Options: Pricing II
Reading: Chapter 12
Overview of this lecture
I. Introduction
II. Expectation Pricing
III. Stock-Bond Replicating Portfolio
Valuation
IV. Stock-option Replicating Portfolio
Valuation
V
FINA2204
Derivative Products and Markets
Lecture 3:
Options: Trading Strategies
Reading: Chapter 11
Review Previous Lecture
I. Introduction to options.
A. Features of an option (underlying, strike, premium,
expiry, etc.)
B. Moneyness (ATM, ITM, OTM)
C. Ti
FINA2204
Derivative Products and Markets
Lecture 2:
Options: The Basic
Reading: Chapters 9 &10
Overview of this lecture
I. Introduction to options.
A. Features of an option
B. Moneyness
C. Time value v.s. Intrinsic value
II.Types of options.
A. American v
FINA2204
Derivative Products and Markets
Lecture 9:
Determination of forward and
futures price
Reading: Chapter 5
Review of previous lecture
I.
II.
III.
IV.
Introduction to Hedging using Futures
Basis Risk
Cross Hedging
Hedging using Stock Index Futures
O
FINA 2204: Derivatives Products and Markets
Solutions to Tutorial 1
Problem 1.9
Explain why a futures contract can be used for either speculation or hedging.
If an investor has an exposure to the price of an asset, he or she can hedge with futures
contrac
FINA 2204: Derivatives Products and Markets
Solutions to Tutorial 7
Problem 3.9
Does a perfect hedge always succeed in locking in the current spot price of an asset
for a future transaction? Explain your answer.
No. Consider, for example, the use of a for
CHAPTER 12
Introduction to Binomial Trees
Practice Questions
Problem 12.8.
Consider the situation in which stock price movements during the life of a European option
are governed by a two-step binomial tree. Explain why it is not possible to set up a posi
CHAPTER 13
Valuing Stock Options: The Black-Scholes-Merton Model
Practice Questions
Problem 13.8.
A stock price is currently $40. Assume that the expected return from the stock is 15% and its
volatility is 25%. What is the probability distribution for the
CHAPTER 9
Mechanics of Options Markets
Practice Questions
Problem 9.8.
A corporate treasurer is designing a hedging program involving foreign currency options.
What are the pros and cons of using (a) the NASDAQ OMX and (b) the over-the-counter
market for
CHAPTER 10
Properties of Stock Options
Practice Questions
Problem 10.8.
Explain why the arguments leading to putcall parity for European options cannot be used to
give a similar result for American options.
When early exercise is not possible, we can argu
BASIC FASB 123 Worksheet
Stock Price ($)
Exercise Price ($)
Expected Life (years)
Time to Vest (years)
Employee Exit Rate pre-vesting (% per year)
Expected Volatility (% per year)
Risk-free rate (% per year)
Dividend yield (% per year)
Which Model? 1=Blac
CHAPTER 10
Properties of Stock Options
Practice Questions
Problem 10.8.
Explain why the arguments leading to putcall parity for European options cannot be used to
give a similar result for American options.
When early exercise is not possible, we can argu
Seminar 9 Problem 1
December 1, 2014
Group # 21:
Andreas Rendler
andreas.rendler@uni-konstanz.de
Problem 1
Problem setting
A speculator expects a decrease in price of XYZ stock. He buys 5 put option contracts (one
option contract is on 100 pieces of XYZ s