Diagrams for Exotic Derivatives:

Diagrams for Exotic Derivatives: Your boss asks you to examine the potential benefits of several exotic derivatives that are being pitched to your hedge fund. For each exotic derivative (ED1 through ED4), draw both a payoff and profit diagram. 1. ED1 is tied to the value of H&B stock, SH&B. The initial cost of ED1 is $10. For every ten dollar mark that the stock price exceeds ($10, $20, $30, $40...etc), ED1 pays $15. 2. ED2 is tied to the price of a barrel of oil, Poil. The initial cost of ED2 is $20. When the price per barrel rises above $50, ED2 pays the value of Poil. When the price per barrel drops below $50, ED2 pays the value of 50-Poil- 3. ED3 is tied to the stock return of H&B, Reth&B.J (in percent value; i.e. 1%, not .01). Your diagram will not be in $, but in %. You can only do a payoff diagram for ED3. The payoff for ED3 is equal to: if abs(Reth&B,T) 1% 1-(Reth&B,T)2 if Reth&B,T 1% 1-(Reth&B,T)2 if Reth&B,T