UECM2453 Financial Economics II
Tutorial 3
1
For a one-period binomial model for the price of a stock, you are given:
The period is one year.
The stock pays no dividends.
u = 1.433, where u is one
UECM2453 Financial Economics II
Tutorial 1
1
Assume that the effective 6-month interest rate is 2%, the S&R 6-month forward price is
$1020. Suppose you buy the S&R index for $1000 and buy a 950-strike
UECM2453 Financial Economics II
Tutorial 6
1
You are asked to determine the price of a European put option on a stock. Assuming the
Black-Scholes framework holds, you are given:
The stock price is $1
Input
Validation
Introduction
The main uses of data for an actuary are:
Setting premiums and/or contribution rates
Calculating reserves required to meet future liabilities
Preparing statutory returns
UECM2263: Applied Statistical Modeling Test 1
Question 1
(a) As someone who has Statistics background, how are you going to analyse the above given
data? List down as many techniques/steps as possible
0.1
Common Terminologies
The Risk-neutral assumption is the assumption that one does not expect a premium for risk. For example, an
asset with defenite payo of 50 is priced the same as an asset with
Chapter 13
Market-Making
and Delta-Hedging
What Do Market Makers Do?
Provide immediacy by standing ready to sell to
buyers (at ask price) and to buy from sellers
(at bid price)
Generate inventory as
Chapter 1 to 3
Chapter 9
Revision on
Financial Derivatives
&
Properties of
Options Prices
What are financial derivatives? What are
their roles in finance?
Give examples of derivatives and draw
their
Chapter 14 & 22
Exotic Options
Exotic Options
Nonstandard options
Exotic options solve particular business
problems that an ordinary option cannot
They are constructed by tweaking ordinary
options
Exam MFE/3F
Sample Questions and Solutions
#1 to #76
In this version, standard normal distribution values are obtained by using the
Cumulative Normal Distribution Calculator and Inverse CDF Calculator
Formula Sheet:
(1 )100% confidence interval for j
j t / 2; n k 1 se( j )
n
n n
n xi yi xi yi
i 1 i 1
1 i 1
2
n 2 n
n xi xi
i 1 i 1
r
t
t
F
S XY
S XX S YY
1 1
MS E
n xi y i xi y i
n xi2 xi
2
UECM2263 APPLIED STATISTICAL MODELS
Formula Sheet:
di
ri
(1 )100% prediction interval computed in time
period t for Ft 1
ei
MS E
( Lt bt ) z / 2 MS E
ei
MS E 1 hii
Var ei
(1 )100% prediction int
UECM 2263 Applied Statistical Models
March 31, 2014
Group Project
Due Date: 31 March, 2014 (Monday, Week 12) by 4.00 pm
Remarks:
This project must be submitted by the due date. Late submission will re
UECM2263 Tutorial 5 Solutions to Selected Questions
Q1
Time plot
500
450
Sales
Yt
mean
400
MA(3)
MA(5)
350
300
1
(d)
2
3
4
5
6
7
Time
8
9
10 11
From the time plot, there is no trend and no seasonal fa
UCCM2263/ UECM2263 Applied Statistical Models Test 2
Question 1
Solution:
(b)
(c)
Yes
No
X
X log10 X
160
(a)
or
120
60
80
100
y
140
X X
5
10
15
20
25
x
Yes
No
No
No
Y
60
80
100
120
y
140
160
180
200
Y
MFE Notes - Spring 2010 Sitting
Lesson 1 - Put-Call Parity
Bull Spread: pays o if stock moves up in price
with Calls: buy CK2 and sell CK1 ; K1 > K2
with Puts: buy PK2 and sell PK1 ; K1 > K2
Bear