FINE 451 / FINE 630
Fixed Income Analysis / Fixed Income Markets
Vadim di Pietro
Assignment 1: Fall 2012: Solutions
1) Consider 4 forward contracts on underlying bonds A, B, C, and D. Each of the
underlying bonds has a face value of $1,000, and each of th
Assignment 1
1. The current price of a stock is $94, and three-month call options with a strike price of $95 currently
sell for $4.70. An investor who feels that the price of the stock will increase is trying to decide between
buying 100 shares and buying
MATHEMATICS 133 ASSIGNMENT
Due in tutorials during the week November 3 - November 7
Instructions: Show all work and justify answers (even where not explicitly requested).
Marks may be deducted for lack of neatness (print if necessary). The assignment mark
Introduction
Forward, Futures, Option
Hedging, Speculation, Arbitrage
1
1. What Is a Derivative?
Definition
An agreement between two parties which has a value
determined by the price of something else
.i.e. The value depends on the value of the underlying
Chapter Four
Option Combinations and Spreads
Multiple Choice
1.
Which of the following is most equivalent to writing a straddle?
a. buy stock, write two calls
b. buy stock, buy one put
c. short stock, buy one call
d. short stock, buy one put
ANSWER: A
2.
Chapter Six
The Black-Scholes Option Pricing Model
Multiple Choice
1.
In the Black-Scholes Option Pricing Model, what is the minimum and maximum
value of N(d1)?
a. minus infinity to plus infinity
b. minus infinity to zero
c. minus one to zero
d. zero to p
Chapter Five
Option Pricing
Multiple Choice
1. If a stocks variance of return increases and everything else remains constant, the price of a
call option will
a. decline.
b. remain unchanged.
c. increase.
d. gradually increase.
ANSWER: C
2. XYZ pays no div
Chapter 3
Basic Option Strategies
Multiple Choice
1. Which of the following strategies most closely resembles the outright purchase of stock?
a. Buy a call, write a call with a higher striking price.
b. Buy a call, write a put.
c. Write a call, write a pu
Chapter Two
Basic Principles of Stock Options
Multiple Choice
1.
A person who buys an option may do any of the following except
a. extend it.
b. exercise it.
c. sell it.
d. allow it to expire.
ANSWER: A
2.
An option whose striking price is above the stock
TEST BANK
Chapter One
Introduction
Multiple Choice
1. The Orange County, California bankruptcy was largely due to the Treasurers use of
a. derivatives.
b. Mortgage-backed securities.
c. repurchase agreements.
d. zero coupon bonds.
ANSWER: C
2. All of the
1.
Aboxspreadisacombinationofabullspreadcomposedoftwocalloptionswithstrike
prices X 1 and X 2 andabearspreadcomposedoftwoputoptionswiththesametwo
strikeprices.
a) Describe the payoff from a box spread on the expiration date of the options.
b) What would
Test Bank: Chapter 25
Exotic Options
1. An Asian option is a term used to describe (Circle one):
(a) An option where the payoff depends on whether a barrier is hit
(b) An option where the payoff depends on the average value of a variable over a period
of
Test Bank: Chapter 24
Credit Derivatives
1. The number of companies underlying the CDX NA IG index is (Circle one)
(a) 50
(b) 75
(c) 100
(d) 125
2. The companies underlying the iTraxx index are (Circle one)
(a) Rated A or above
(b) Rated BBB or above
(c)
Test Bank: Chapter 23
Credit Risk
1. Suppose that the cumulative default probability for a company for years one, two, three
and four are 3%, 6.5%, 10%, and 14.5%.
(i) What is the unconditional default probability for year four _ _ _ _ _
(ii) What is the
Test Bank: Chapter 22
Estimating Volatilities and Correlations
1. The estimate of the volatility of an asset made at the end of Tuesday is 1% per day. On
Wednesday the return realized on the asset is 1.5%. Update the volatility estimate
(i) Use the EWMA m
Introduction
Forward, Futures, Option
Hedging, Speculation, Arbitrage
1
1. What Is a Derivative?
Definition
An agreement between two parties which has a value
determined by the price of something else
.i.e. The value depends on the value of the underlying
Futures
Mechanism of Futures Trading
Specifications of the Futures contract
Futures vs Spot
Margin
Hedging
1. Mechanism of Futures Trading
Steps
Call a broker and Inform of the purchase
The broker submits the order to the floor of exchange
They are 2 type
FINE 451 / FINE 630
Fixed Income Analysis / Fixed Income Markets
Vadim di Pietro
Sample Midterm: Solutions
Exam length: 80 minutes
Total points: 80
Closed book and closed notes.
You may use a non-programmable calculator. If you want, you can use a financi
FINE 451 / FINE 630
Fixed Income Analysis / Fixed Income Markets
Vadim di Pietro
Midterm: Fall 2012: Solutions
Exam length: 80 minutes
Total points: 100
Closed book and closed notes.
You may use a non-programmable calculator. If you want, you can use a fi
McGill University
Desautels Faculty of Management
Course Syllabus Fall 2014: FINE 451 / FINE 630
Fixed Income Analysis / Fixed Income Markets
Instructor: Vadim di Pietro
Contact Information:
Preferred method of communication is by email at vadim.dipietro@
Question 1:
a)
What is the no arbitrage forward price of bond D? To solve, need to figure out the
forward rates f10,1, f10,2 and f10,3. Given the data in the table provided:
Can determine f10,1 using the information provided for bond A:
1000 =
1000(1.1)
1
FINE 451 / FINE 630
Fixed Income Analysis / Fixed Income Markets
Vadim di Pietro
Assignment 1: Fall 2014
Due date: Tuesday Oct 14, by 6:30pm. You may slide the assignment under my door
(Room 220) any time before the due date, or you can hand in the assign
Lecture 11: Outline
Floating rate bonds
Swap rates
Floating rate bonds: Description
A floating rate bond has coupon payments that depend
on some reference rate plus or minus a spread
Bond also pays back FV at maturity
Example: 10-year bond, FV = 10,0
Lecture 23
Bond options
Introduction
Callable/Putable bonds
Binomial trees and risk neutral probabilities
Bond options
A call option on a bond gives the owner of the option the right,
but not the obligation to buy the bond at a predetermined strike
p
Lecture 13: Outline
Corporate bonds
Ratings
Default probability
Credit spreads
(Sorry, I couldnt find a funny corporate bond themed image, so this
will have to do. Its kind of like a corporate bond.)
Corporate bonds
Companies issue bonds to raise cas
Lecture 20: Outline
Repos
Repurchase Agreement
A repurchase agreement is a sale of a security together
with an agreement to repurchase the security at a later
date, at a pre-specified price
Mostly overnight repos
Can be for longer periods: term repo
Lecture 19
Collateralized Mortgage Obligations (CMOs)
CMOs
Collateralized Mortgage Obligations (CMOs)
CMO issuer buys a pool of mortgages, and issues multiple
classes (or tranches) of fixed income securities (the CMOs),
which are backed by the underlyi