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Under the assumptions of the BSM model, consider a long forward contract (contract to receive 1000 shares) on a non-dividend paying stock with delivery price
Under the assumptions of the BSM model, consider a long forward contract (contract to receive 1000 shares) on a non-dividend paying stock with delivery price of $35 per share and 9 months to expiry. The stock's current price is $30 per share, its continuously compounded expected return (or growth rate) is 10% per annum, and its volatility is 30% per annum. Finally, the continuously compounded risk-free rate is 3% per annum. a) Calculate the value of the long forward in 6 months' time as a function of the stock price prevailing at that time. (5 marks) b) Determine the real-world expected value, as of today, of the long forward in 6 months. (5 marks) c) Determine the 6-month 95%VaR of the long forward position as of today. (5 marks) Under the assumptions of the BSM model, consider a long forward contract (contract to receive 1000 shares) on a non-dividend paying stock with delivery price of $35 per share and 9 months to expiry. The stock's current price is $30 per share, its continuously compounded expected return (or growth rate) is 10% per annum, and its volatility is 30% per annum. Finally, the continuously compounded risk-free rate is 3% per annum. a) Calculate the value of the long forward in 6 months' time as a function of the stock price prevailing at that time. (5 marks) b) Determine the real-world expected value, as of today, of the long forward in 6 months. (5 marks) c) Determine the 6-month 95%VaR of the long forward position as of today
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