MFIN6003 Derivative Securities
End-of-chapter Questions for Practice (with Answers)
Following is a list of selected end-of-chapter questions for practice from McDonalds
Derivatives Markets (3rd edition). For students who do not have a copy of the McDonald
Master of Finance, Faculty of Business and Economics, University of Hong Kong
MFIN6003 Module 1
Derivative Securities
Session A&B: August 21 October 7, 2017
Instructor: Dr. Huiyan Qiu
Room 917, K. K. Leung Building
The University of Hong Kong
Tel: (852) 2
MFIN6003 Derivative Securities
Dr. Huiyan Qiu
Answers to practice questions on TVM and no-arbitrage principle
Question 1
1 + EAR = (1 + 5%/2)2 = 1.0506
a) 1 + APR = 1 + EAR = 1.0506 The equivalent APR with annual compounding is
5.06%.
b) (1 + APR/12)12 =
MFIN6003 Derivative Securities
Dr. Huiyan Qiu
Extra Note for Session One: Introduction to Derivatives
Solution to the in-class exercise on slide 1-25:
5% semi-annual compounding (1 + 5%/2)2 1 = 5.06% effective
annual interest
To result in the same effecti
MFIN6003 Derivative Securities
Dr. Huiyan Qiu
Extra Note for Session Two: Introduction to Forward and Options
Forwards and options: definition
Forward contract : futures contract ()
a binding agreement (obligation) to buy an underlying asset in the
futu
MFIN6003 Derivative Securities
Dr. Huiyan Qiu
Session Three: In-Class Exercise on Forward Pricing
Answers
A $50 stock pays a 4% continuous dividend. The continuously
compounded risk-free rate is 6%.
What is the price of a forward contract that expires 1
Barings Bank
From Wikipedia, the free encyclopedia
Barings Bank was a British merchant bank based in London,
and the world's second oldest merchant bank (after
Berenberg Bank). It was founded in 1762 and was owned by
the German-originated Baring family of
Derivatives
FINA0301/2322: Fall 2016
Section B: 09:30-12:20, Monday, MWT7
Section C: 14:30-17:20, Monday, LE2
Instructor: Dr. Ruoyan HUANG
Office: KKL 1115
E-mail: [email protected] (Please include FINA0301/2322: at the beginning of your subject line.)
Offic
THE UNIVERSITY OF HONG KONG
FACULTY OF BUSINESS AND ECONOMICS
FINA0301/2322DE DERIVATIVES
SECOND SEMESTER, 2016-2017
Assignment 4
Question 1
Suppose that the current stock price is 100. The risk-free interest rate 8% p.a. and the annualized
volatility is
Major Wall Street Clearinghouse DTCC to Develop Operational Blockchain Network for
Derivatives
Read
more: http:/www.nasdaq.com/article/major-wall-street-clearinghouse-dtcc-todevelop-operational-blockchain-network-for-derivatives-cm733035#ixzz4YIkpfRkg
The
Call
S
K
r
t
sigma
dividend
41
40
0.08
0.25
0.3
0
d1
d2
N(d1)
N(d2)
Bscall
0.372951
0.222951
0.645407
0.588213
3.399078
Put
S
K
r
t
sigma
dividend
41
40
0.08
0.25
0.3
0
d1
d2
N(-d1)
N(-d2)
Bsput
0.372951
0.222951
0.354593
0.411787
1.607025
Day 0
S
40
K
40
Spreadsheet Modeling in Finance
Module 5:
Portfolio Optimzation
Content:
Section Name
Two Stocks
Demo
TwoStockDemo
Many Stocks
Weekly Stock Prices
Convariance Matrix
Variance and Covariance
Optimization
Array Functions and Matrix
Matrix
Information
Index
Spreadsheet Modeling in Finance
Module 3:
User Defined Functions
Content:
Section Name
Black-Scholes Formula
on Worksheet
BSDemo
Customized Functions in VBA
Cutomized Functions
Black-Scholes VBA
BS in VBA
Drop down menu
BS graphic
Digital Option
Function
Spreadsheet Modeling in Finance
Module 4:
VBA 2
Content:
Section Name
Message Box
Cell Content
Worksheet Content
Workbook Demo
If then else
For Next
Select Case
Factorial
Range Name
Charting
Finance
Demo
Display PI
Reading Cell value
Reading other workshe
Spreadsheet Modeling in Finance
Module 3:
User Defined Functions
Content:
Section Name
Black-Scholes Formula
on Worksheet
BSDemo
Customized Functions in VBA
Cutomized Functions
Black-Scholes VBA
BS in VBA
Drop down menu
BS graphic
Digital Option
Function
Spreadsheet Modeling in Finance
Module 4:
VBA 2
Content:
Section Name
Message Box
Cell Content
Worksheet Content
Workbook Demo
If then else
For Next
Select Case
Factorial
Range Name
Charting
Finance
Demo
Display PI
Reading Cell value
Reading other workshe
Volatility estimation and
Value at Risk
Estimating Volatility
Define n as the volatility per day between
day n-1 and day n, as estimated at end of
day n-1
Define Si as the value of market variable at
end of day i
Define ui= ln(Si/Si-1)
m
1
n2
( un i u )
Spreadsheet Modeling
VBA 2
Macro Recorder
Select Tools -> Macro -> Record New Macro in Excel
(2003 or earlier versions)
Select Developer -> Record New Macro (2007
version)
It will record whatever actions you do in VBA
language
Try the following actions:
1
Spreadsheet Modeling
Binomial Tree
Binomial Trees
Binomial trees are used to
approximate the movements in
the price of a stock or other asset
In each small interval of time the
stock price is assumed to move
up by a proportional amount u or
to move down b
Spreadsheet Modeling
Monte Carlo Simulation
Monte Carlo Simulation
and
How could you calculate by
randomly sampling points in the
square?
Monte Carlo for Option
Pricing
1.
2.
3.
4.
5.
When used to value European stock options,
this involves the following
Spreadsheet Modeling
Portfolio Optimization
Portfolio Optimization
Two stock examples (mean, variance)
Many stock examples
Covariance Matrix
Matrix operation in Excel
Find optimal Portfolio using Solver
Two Stock Example
Daily log return defined by
St
Ret
Size: Market Valuation: Enterprise Value
Enterprise value (total enterprise value or rm value) consists of
equity value (on fully diluted basis)
+ preferred stock
+ noncontrolling interest
+ total debt
cash and cash equivalents
Enterprise value is co
Comparable Companies Analysis
Matthias Buehlmaier, PhD
The University of Hong Kong
MFIN7010, May to June 2017
1
Trading Comps
Comparable companies analysis is also known under the
abbreviations comparable companies and trading comps
It is one of the pri
Leveraged Buyouts
Matthias Buehlmaier, PhD
The University of Hong Kong
MFIN7010, May to June 2017
1
LBO Overview
A leveraged buyout (LBO) is an acquisition in which debt is used to
finance a large part of the purchase price
The remaining portion is fund
Discounted Cash Flow Analysis
Matthias Buehlmaier, PhD
The University of Hong Kong
MFIN7010, May to June 2017
1
Overview of DCF Analysis
DCF analysis or the DCF is a fundamental valuation methodology,
broadly used
Premised on principle that value can be
Sell-Side M&A
Matthias Buehlmaier, PhD
The University of Hong Kong
MFIN7010, May to June 2017
1
Sell-Side M&A Is Important
The sale of company, division, business, or collection of assets
(target) is a major corporate event for its owners (shareholders),
Precedent Transactions Analysis
Matthias Buehlmaier, PhD
The University of Hong Kong
MFIN7010, May to June 2017
1
Overview
Precedent transactions analysis (also called precedent transactions
or transaction comps) is in principle very similar to trading c
Buy-Side M&A Part 1
Matthias Buehlmaier, PhD
The University of Hong Kong
MFIN7010, May to June 2017
1
Overview of Buy-Side M&A
An investment banking advisory assignment for a company seeking
to buy another company (or part thereof) is referred as a
buy-s