Mathematical theory in otc, Basic Statistics

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All parts should be answered as briefly as possible (quality not quantity!). A few sentences will suffice. Just get your opinions across succinctly. Unnecessarily long answers will be penalised.

a) Why do companies buy Over The Counter derivatives (OTC)?

b) In your opinion, what should the bank's objective be when coming up with a price for the OTC derivatives?

c) In your opinion, how should banks come up with an OTC derivative price which meets this objective?

d) In your opinion, does the mathematical theory help achieve this? Why/Why not?

 


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