The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
Homework 2
Due Nov 27 before 10:30
Submit before the class or via LMES
1. A fourmonth European call option on a dividendpaying stock is currently selling for
$5. The stock price is $64, the strike price is $60, and a dividend of $0.80 is expected
in one
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
(FINA222)[2010](s)midterm~2047^_10335.pdf downloaded by lhhoab from http:/petergao.net/ustpastpaper/down.php?course=FINA222&id=1 at 20130921 09:43:50. Academic use within HKUST only.
FINA222 Midterm
Name:
Student ID:
This is a closedbook, closed notes
The Hong Kong University of Science and Technology
3204
FINA 3204

Spring 2016
Home work 1, due on or before March 20th, please submit through canvas.
1. Today an investor enters into a short forward contract to sell 1 ounce of gold in 12
months at price 1200. Today the gold price is 1150. Suppose in 12 months, the
gold price is eit
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
Sample Midterm
I. Multiple Choice Questions: (33)
1. Four portfolios have following cash flows patterns. Which portfolio provides
arbitrage opportunity?
Portfolio
A
B
C
D
a.
b.
c.
d.
t=0
Receive $10
Receive $10
Pay 0
Pay $10
t=T
Pay 0
Pay 11
Receive $10
R
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
Homework 1 Solution
1. An investor with $100,000 to invest feels that Googles stock price will increase over
the next 2 months. The current stock price is $500 and the price of a 2month call
option with a strike of $500 is $25
a. What are the alternative
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
Homework 1 (Due Oct 1st before the class)
Submit before the class on Oct 1st or send me email [email protected] before Oct 1st
2:30pm .
1. An investor with $100,000 to invest feels that Googles stock price will increase over
the next 2 months. The current s
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
(FINA222)[2009](s)final~2047^_10334.pdf downloaded by lhhoab from http:/petergao.net/ustpastpaper/down.php?course=FINA222&id=0 at 20130921 09:43:45. Academic use within HKUST only.
FINA222 2009 Spring Final Exam
Name
Student No.
Note: All interest rates
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Practice Questions
Binomial Tree Model
Practice Questions
Problem 12.1.
A stock price is currently $40. It is known that at the end of one month it will be either $42 or
$38. The riskfree interest rate is 8% per annum with continuous compounding. What is
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
CHAPTER 17
The Greek Letters
Practice Questions
Problem 17.8.
What does it mean to assert that the theta of an option position is 0.1 when time is measured
in years? If a trader feels that neither a stock price nor its implied volatility will change,
what
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Course Overview
Derivative Securities
FINA 3204
Forwards &
Futures
Options Basics
Market
Mechanics
Hedging
Strategies
Options
Pricing
Warrants, CBBC
FINA 3204: Derivative Securities
Andrew Chiu
Review of Option Types
A call is an option to buy
A put is
The Hong Kong University of Science and Technology
3204
FINA 3204

Spring 2016
CHAPTER 1
Introduction
Problem 1.5.
An investor enters into a short forward contract to sell 100,000 British pounds for US
dollars at an exchange rate of 1.4000 US dollars per pound. How much does the investor
gain or lose if the exchange rate at the end
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
CHAPTER 5
Determination of Forward and Futures Prices
Problem 5. l.
Explain what happen: when (In invcvmr shorts a certain share.
The investor’s broker borrows the shares from another Client's account and sells them in the
usual way. To close out the posi
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
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
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Practice Questions
The Greek Letters
Practice Questions
Problem 18.2.
What does it mean to assert that the delta of a call option is 0.7? How can a short position in
1,000 options be made delta neutral when the delta of each option is 0.7?
A delta of 0.7
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Practice Questions
Option Basics
Problem 9.2.
An investor sells a European call on a share for $4. The stock price is $47 and the strike price
is $50. Under what circumstances does the investor make a profit? Under what circumstances
will the option be ex
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Derivative Securities
FINA 3204
Options Basics
Andrew Chiu, PhD
[email protected]
The Hong Kong University of
Science and Technology
FINA 3204: Derivative Securities
Andrew Chiu
Course Overview
Forwards &
Futures
Market
Mechanics
Hedging
St
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Prices were taken on Sep 21, 2015
Midprices are used for the followings: (Mid price is the average of Bid and Ask)
F (Mar)
S
T
21580
21629.2
0.523
r
q
0.57%
1.01%
6 month HIBOR
https:/bank.hangseng
< Too low? Think about how to arbitrage
F (Oct)
S
T
59.
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Additional Notes on Contango, Backwardation and Roll Return
Andrew Chiu
Let me use an example to illustrate how roll return works. There exists an asset with a current
price of 100 and eventually rises to 120 in 1 year. Consider three scenarios: (a) the f
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Derivative Securities
FINA 3204
Introduction to Derivatives
Andrew Chiu, PhD
[email protected]
The Hong Kong University of
Science and Technology
FINA 3204: Derivative Securities
Andrew Chiu
Course Overview
Forwards &
Futures
Market
Mechanics
Hedging
Str
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Derivative Securities
FINA 3204
Fuel Hedging by
Hong Kong Listed Airlines
Andrew Chiu, PhD
[email protected]
The Hong Kong University of
Science and Technology
FINA 3204: Derivative Securities
Andrew Chiu
Cathay Pacific
The Hong Kong University of
Scienc
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
Derivative Securities
FINA 3204
Forwards & Futures
Andrew Chiu, PhD
[email protected]
The Hong Kong University of
Science and Technology
FINA 3204: Derivative Securities
Andrew Chiu
Course Overview
Forwards &
Futures
Market
Mechanics
Hedging
Strategies
O
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
FINA 3204: Assignment 2
Total: 10 points
Question 1 (3 points)
A fourmonth European call option on a dividendpaying stock is currently selling for $5. The stock price
is $64, the strike price is $60, and a dividend of $0.80 is expected in one month. The
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
FINA 3204: Assignment 1 Solution
Please hand in a hard copy at the beginning of class
Total: 21 points (8 questions)
Grading:
1)
2)
3)
4)
Use a check to indicate correct answer
Write down the grade earned on each question
Use a cross to indicate areas whi
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2015
c
p
S
PutCall Parity
Left side
c + PV(K)
32.26
3
2.25
31
Right side
p+S
33.25
t=0
1) long call
2) Save money
3) Write put
4) Short stock
Net cashflow
Alternative
1) long call
Diff (t=0)
0.99
Diff (t=T)
1.02
t=T
S <= 30
don't exercise
3
S > 30
exercise

The Hong Kong University of Science and Technology
3204
FINA 3204

Spring 2016
Home work 1 Answer
1. Today an investor enters into a short forward contract to buy 1 ounce of gold in
12 months at price 1200. Today the gold price is 1150. Suppose in 12 months, the
gold price is either 1300 or 1100. (5 points each)
1) What is the value
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
FINA222 Derivative Securities
Chapter 3
Hedging Strategies
1
Who hedge?
Buyer of an underlying
Food manufacturers, airline, importer
Seller of an underlying
Famer, equity investor, exporter
2
The Buyers Perspective
A buyer that faces price risk on an
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
FINA222 Derivative Securities
Chapter 2
Mechanics of Futures Markets
1
Forward Contracts
The simplest derivatives
Forward contracts are almost all traded in overthecounter (OTC) markets.
Contract specification:
Amount and quality of good to be delive
The Hong Kong University of Science and Technology
3204
FINA 3204

Fall 2013
FINA222 Derivative Securities
Chapter 1
Introduction to Derivatives
1
What Is a Derivative?
Definition
A contract between two parties which has a value
determined by the price/value of something else .
(something else = underlying).
Usually can be cons
The Hong Kong University of Science and Technology
Financial Derivatives
FINA 3204

Spring 2017
Quiz
Which of the following is not a derivative instrument?
(a) Contract to sell corn
(b) Option agreement to buy land
(c) Installment sales agreement
(d) Mortgage backed security
1
Quiz
Options and futures are zero sum game, what dose this statement
mea
The Hong Kong University of Science and Technology
Financial Derivatives
FINA 3204

Spring 2017
Syllabus: FINA 3204 Derivative Securities (Spring 2016)
Instructor: Professor NI, Sophie
Email: [email protected]
Office Address: Room 5084 LSK; Tel: 2358 5052
Office Hours: Friday 34:30pm, or by appointment, or just stop by at any time. Also if you
have a