Repeat the previous problem, only use Monte Carlo simulation. In previous problem Using the delta-approximation method and
Question:
In previous problem Using the delta-approximation method and assuming a $10m investment in stock A, compute the 95% and 99% 1-, 10-, and 20-day VaRs for a position consisting of stock A plus one 105-strike put option for each share.
Step by Step Answer:
Monte Carlo simulations should give answers close to the analytical values that are shown ...View the full answer
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Banking questions
-
Repeat the previous problem, only use Monte Carlo simulation.
-
Provide examples of how some companies use Monte Carlo simulation.
-
Repeat the previous problem, only assuming that defaults are perfectly correlated.
-
Based on Exhibits 5 and 6, the value of the lower one-period forward rate is closest to: A. 3.5122%. B. 3.5400%. C. 4.8037%. Meredith Alvarez is a junior fixed-income analyst with Canzim Asset...
-
In The Overtime Rule in the National Football League: Fair or Unfair? by Gorgievski et al., mathama TYC Educator, Vol. 2, No. 1, the authors report that among 414 football games won in overtime, 235...
-
Define returns to scale. Why is this considered a long-run phenomenon?
-
Rent and view one of these movies. What do they have to do with forensic accounting? a. My Cousin Vinny b. Breach c. Catch Me if You Can d. Boiler Room e. Caller f. Untouchables
-
Omer Asik began operations as a private investigator on January 1, 2012. The trial balance columns of the worksheet for Omer Asik, P.I. at March 31 are as follows. Other data:1. Supplies on hand...
-
A 5-year Treasury bond has a 4.9% yield. A 10-year Treasury bondyields 6.0%, and a 10-year corporate bond yields 8.6%. The marketexpects that inflation will average 2.8% over the next 10 years(IP10 2...
-
Tampas Soda Pop, Inc. has a new fruit drink for which it has high hopes. Don Hammond, the production planner, has assembled the following data and demand forecast: Quarter Forecast 1 2 3 4 1,800 900...
-
Using the delta-approximation method and assuming a $10m investment in stock A, compute the 95% and 99% 1-, 10-, and 20-day VaRs for a position consisting of stock A plus one 105-strike put option...
-
Compute the 95% 10-day VaR for a written strangle (sell an out-of-the-money call and an out-of-the-money put) on 100,000 shares of stock A. Assume the options have strikes of $90 and $110 and have 1...
-
Sketch the Manchester encoding for the bit stream: 0001110101.
-
How do you verify the following items? (a) Raw material stock (g) Machine purchased on H. P. system (b) Land (h) Patterns and designs (c) Preliminary expenses (i) Freehold properties (d) Investment...
-
Review the description of social perception given earlier in this chapter. What do you consider most when forming an impression of a person you have just met? What types of attribution error are you...
-
A mail-order retail organization sells complex electronic equipment through its catalogs. Orders are taken over phone lines and transmitted via terminal to the company's main warehouse for...
-
Mention important items for which auditor would refer to each of the following: (a) Boards meeting minutes book (b) Shareholders meeting minutes book
-
Creating, Maintaining, and Changing Organizational Culture. Discuss the implications for the observations in that section that follow from the effects mentioned in Question 6. Question 6. Review...
-
The table below gives values of a function which describes the path of an object that has been dropped from a height of 16 feet. Which of the following equations is equal to f(x)? A. f(x) = x 2 16....
-
-x/2 x/4 If A = -x/2 and A-1 =6 then x equals
-
Which of these account items or entries would normally occur on a banks balance sheet (Report of Condition) and which on a banks income and expense statement (Report of Income)? Federal funds...
-
You were informed that a banks latest income and expense statement contained the following figures (in $ millions): Net interest income .......... $800 Net noninterest income......... (500) Pretax...
-
Why do the financial statements issued by banks and by nonbank financial-service providers look increasingly similar today? Which nonbank financial firms have balance sheets and income statements...
-
Select which statement concerning key performance indicators (KPIs) is NOT true. O KPIs include qualitative data from multiple sources. O KPIs data comes from the accounting information system for a...
-
28. Which of the following statements accurately describes a regressive tax? A) A tax which results in higher effective tax rates for higher income taxpayers. B) A tax which results in lower...
-
In a precedence network, the critical path is the sequence of activities which has: O a. the most activities. O b. the most nodes. . the most events. O d. the longest duration. Oe. the greatest...
Study smarter with the SolutionInn App