Put - Call Parity S + P = C + PV(E) Put - Call Parity with continuous compounding S + P = C + Ee-RI Black - Scholes Option Pricing N(dl) and N (D2) are C = SN(d)-Ee "n(d,) found using the cumulative standard normal S In R+ distribution tables. E 2 d. = ovi dz =d, -ori Value-at-Risk for one period VaR = Vo ao (Vo - Current Value, a = 1.65 or 2.33, - standard deviation) Value-at-Risk for portfolio Portfolio VaR in the case of 2 assets: VaRp = VaR + Varz + 2VaR, VaRg PAB VaRA Value-at-risk of asset A VaRg Value-at-risk of asset B PAB Correlation between A and B , . . . Susan purchased an option that she can exercise anytime before the option maturity date. Which type of option did she purchaser O Pointed O American Inflexible O Dated O European QUESTION 2 Unlike forwards and futures, options allow a firm to hedge downside risk but still participate in upside potential. O True O False QUESTION 3 in maturity or in exercise price. The value of the call options will increase either by O Increase, decrease decrease; decrease increase; Increase decrease; increase O no effect; no effect Briefly explain the downside of derivative markets although many arguments are made in favor of them. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BI V S Paragraph Arial 10pt V V > ev 2 P QUESTION 5 Big fraction of derivative market size comes from interest rate contracts where options hold the most significant size. O True O False QUESTION 6 Put-Call parity is useful in determining the value of a European put option if the call premium is determined by Black-Scholes Formula above. O True False AV Payoff profile for forward contract APO Resulting exposure Risk profile What is the main learning outcome provided in the graph above for a derivative contract written on oil? Briefly explain. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BI V S Paragraph Arial 10pt !!! Current market price per unit Number of units held Total market value Historical volatility Asset A $50 100 $5,000 1.0% (one day) Asset B $100 100 $10,000 2.0% (one day) Calculate the 5-day VaRp for a 99% confidence level assuming a correlation between A and B is 1.0 1.0.5 ill. 1 Do you see a pattern? If yes, why? Explain and Show your steps. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). BI V S Paragraph Arial V 10pt NI! QUESTION 12 Which of the followings is/are correct related to Value-at-Risk? 1. The model is simple to implement. I. With normality assumption, we still need to investigate historical data. it. It is not totally independent from standard deviation. Iv. Like other volatility measures, It focuses on losses and gains. O land i and I O i and iv Oli and in Ill and in
