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Question 1 For each of the FIVE (5) statements below, state whether it is TRUE or FALSE (2 marks), and EXPLAIN the reason (3 marks).
Question 1 For each of the FIVE (5) statements below, state whether it is TRUE or FALSE (2 marks), and EXPLAIN the reason (3 marks). 1) The expected future value of an asset that follows a generalised Wiener process, in a risk-neutral world, is the current value of the asset. Type answer here 2) A European oil spot option, and a European oil futures option, that share the same strike price and maturity, will have the same price. Type answer here 3) Consider a credit index that comprises 125 reference entities. A trader buys the index at a spread of 200 bps payable semi-annually on a notional amount of $1 million. Assume one reference entity defaults. After default, the cash flows to the trader will be $9,920 received every 6 months. Type answer here 4) Consider a cap and a floor that have identical notional principals, payment dates and the cap rate equals the floor rate. The value of the cap is equal to an equivalent fixed rate payer swap plus the floor. Type answer here 5) Expected shortfall is a conditional Value-at-Risk (VaR) measure and therefore suffers from the same shortcomings as VaR. Type answer here
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