1. Draw a long call, short call, long put, short put, labeling the two axes. What is the difference between a theoretical option value and an actual payoff? What does the put-call parity relationship represent? Provide an example of combining options into a strategy that is long volatility. Describe the construction of and rationale for a covered call? A protective put?

2.How can futures be used to manage interest rate risk in a fixed income portfolio? How can futures be used to manage beta in an equity portfolio? Explain the mechanics of a fixed- floating swap, describing the rationale for each participant entering the contract. What is a credit default swap?