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风险管理作业代写 | EF4321 Derivatives and Risk Management

2019-11-19 13:40 星期二 所属: 作业代写 浏览:27

风险管理作业代写 This assignment score will constitute 50% of the semester

Individual Assignment

 

EF4321 Derivatives and Risk Management

 

Notes:

  • This is NOT a group assignment. Every student should work INDIVDUALLY and submit INDIVDU-
  • This problem set is to be turned in by Tuesday, 10 December 11:00 pm. Please present your work using MS Word or PDF and submit online on You may use Excel for calculation but the final solution should be presented in MS Word orPDF.
  • This assignment score will constitute 50% of the semester
  • Allof questions are from lectures 6 though
风险管理作业代写
风险管理作业代写

 

True/False Questions [30 points – 3 points for each]

For each of the following statements, mark (a) if the statement is true or (b) if it is false.

 

 

  1. The profit for a short position in a call option is always negative or
    • True
    • False

 

 

  1. As the time to expiration becomes longer, an American call option always becomes more
    • True
    • False

 

 

  1. Consider two European put options with the same expiration dates and the same strike prices. The underlyingassets of the two options are  One option is for stock A whose current price is $50 and has the volatility of 30%. The other is for stock B whose current price is $45 and has the volatility of 25%. Both stock A and B will pay no dividends. The price of put A is always higher than the price of put B.
    • True
    • False

 

 

  1. The put-call parity holds only when future stock price changes as described in a binomial
    • True
    • False

 

 

  1. To find the option price in a binomial tree, we need an assumption regarding the probability of the increase/decrease in the stock
    • True
    • False

 

 

 

  1. Suppose that risk-averse investors expect the return on a stock to be µ per annum and the risk-free rate is r per annum. In a binomial tree, if µ < r, the real probability of an increase in the stock price is lower than the risk-neutral probability of the
    • True
    • False

 

 

  1. Consider an American put option on a non-dividend paying stock. The option will expire on date T . On date t(< T ), the option payoff from the immediate exercise is always lower than the value that results from not exercising and holding the
    • True
    • False

 

 

  1. In risk-neutral valuation, we recognize that investors are risk-averse and thus modify the probability of an increase in a stock price from the real
    • True
    • False

 

 

  1. In the Discounted Cash Flow, the required return on a European option should be higher than the risk-free rate. Otherwise, an arbitrage
    • True
    • False

 

 

  1. An investor wants to construct a bull spread using put options with the same expiration dates. The investorneeds to long the put with strike price K1 and short the put with strike price K2(> K1).
    • True
    • False

 

 

2. Short-Answer Questions

  1. Consider a three-year European call option with the strike price of $150.  The underlying stock will     pay $10-dividend two years later from now.  The current stock price is $170.  The risk-free rate is 3%  per Find the range of the call prices that do not allow any arbitrage. [5 points]

 

  1. An investor wants to construct a bear spread using two put options with the same expiration T . One put has the strike price of $20 and currently sells for $2. The other put has the strike price of $30  and currently sells for $7. Find the range of stock price on T that results in a positive profit for the investor. [5points]

 

  1. In time 0, an investor takes a calendar spread by selling two-year European call option and buying three-year European call option. These two options have the same strike price of $80 and are for the same stock that pays no dividends. The two-year option sells for $5 and the three-year option sellsfor

$7. Two years later, the stock price turns out to be $90. The risk-free rate is 2% per annum. What is the minimum of the profit from this strategy? (We assume that we sell the longer-term option in year two) [5 points]

 

 

 

  1. Consider a European call and a European put on a non-dividend-paying stock. Both the call and the putwill expire in one year and have the same strike prices of $120. The stock currently sells for $115. The risk-free rate is 5% per  The price of the call is $7 and the price of the put is $5. Is there an arbitrage? If so, show an arbitrage strategy. (To show the arbitrage, present the table listing actions and resulting cash flows) [6 points]

 

 

  1. Consider a two-year European put on Canadian Dollar (CAD). The strike price of the put is 6.50 HKD(HongKong Dollar)/CAD. The risk-free rate is 2% per annum in Hong Kong and 3% per annum in Canada. The current exchange rate is 5.90 HKD/CAD. The put currently sells for $0.4 in Hong Kong. Is there an arbitrage for Hong Kong investors? If so, show an arbitrage strategy. (To show the arbitrage, present the table listing actions and resulting cash flows) [6 points]

 

  1. Supposethat there are two possible states of the economy, A and B, in year T . A stock’s price in year T will depend on the economic state as in the table below. A risk-free bond currently sells for $8 and it will pay $10 in year T in every
state A state B
stock $150 $80
bond $10 $10
In addition, we also see a year-T  European call option on the stock above.  The call has the strike price  of $100 and currently sells for $20. What is the current stock price? [6 points]

 

  1. An one-year European call option has the strike price of $60. The underlying stock pays no dividend and currently sells for $70. One time step is six months long, and the stock price may move up or down by 10% in each step. The risk-free rate is 3% per

 

  • What is the risk-neutral probability of an increase in the stock price in each step? [5points]

 

 

  • What is the time-0 current price of the call? [6points]

 

 

  • Find the replicating portfolio that we construct in time 0 to generate the same value as the call  six months later. [6points]

 

 

  • Suppose that risk-averse investors require the stock return to be 12% per annum. In the approach of Discounted Cash Flow, what is the discount rate for the call per annum? [7points]

(Hint: Use the replicating portfolio found in (c).)

 

 

 

  1. The current term-structure of risk-free rate is as

 

Term-structure in year 0 maturity (years) zero-rate (%)

1 2.5

2 3.0

 

A risk-free bond will pay $1,000 two years from now. The price of the bond one year later depends on  the term structure then. There are two possible scenarios in year 1:

 

Term-structure in year 1

Scenario A Scenario B

maturity (years) zero-rate (%) maturity (years) zero-rate (%)
1 1.0 1 4.0
2 2.0 2 5.0

 

An investor considers buying an one-year European call option on the bond with the strike price of

$970.

 

  • Whatare the payoffs in scenario A and B in year one for a long position in the call? [6 points]

 

  • What is the present value (in year 0) of the call?[7 points]

(Hint: Find a replicating portfolio using the two-year bond and an one-year bond. For an one-year bond, you can choose any face value as you like.)

 


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