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Part A: A portfolio contains two separate options: P1(K1) and C2(K2). The portfolio is short in P1(K1) and long in C2(K2). Assume that the two European options described above are for the same underlying assets and have the same maturity (T) and have no interim cash flows (i.e. no dividends). Assume that each of the options has a different strike (Ki) such that K1< K2 and that the strikes are equally spaced apart. I. Draw a payoff diagram at expiry of the trading strategy which illustrates what potential payoffs could be generated. Include Axis notation. II. What is the lower boundary for the payoff value of the trading strategy described above for any series of two equally spaced strikes Ki. III. What is the upper boundary for the payoff value of the trading strategy described above for any series of two equally spaced strikes Ki.
Part B: Another portfolio contains three European vanilla options: P1(K1), P2(K2) and C3(K3). The portfolio is long in P1(K1) and C3(K3) and short in P2(K2). Assume that the three European options described above are for the same underlying assets and have the same maturity (T) and have no interim cash flows (i.e. no dividends). Assume that each of the options has a different strike (Ki) such that K1< K2< K3 and that the strikes are equally spaced apart. I. Draw a payoff diagram at expiry of the trading strategy which illustrates what potential payoffs could be generated. Include Axis notation. II. What is the lower boundary for the payoff value of the trading strategy described above for any series of three equally spaced strikes Ki. III. What is the upper boundary for the payoff value of the trading strategy described above for any series of three equally spaced strikes Ki.
Part C: I. Prove the initial value of a forward contract at the beginning of the contract (where t = 0)?
II. Explain why futures contracts may have less "risk" than forward contracts. What features and mechanisms ensure that this is the case?
a) Prepare a scatterplot of Sales against Number of sales people working. b) What can you say about the direction of the association? c) What can you say about the form of the relationship?
The Watts New Lightbulb Corporation ships large consignments of lightbulbs to big industrial users. When the production process is functioning correctly, which is 90% of the time, 10% of all bulbs produced are defective.
Suppose that the annual rate of return for a common biotechnology stock is normally distributed with a mean of 5.5% and a standard deviation of 6%. Find the probability that the one-year return of this stock will be negative.
The mean to be $19 and the standard deviation to be 6.8. Find the best point estimate of the population mean and the 95% confidence interval of the population mean.
An arriving customer will not wait if there are at least three others waiting for the tax preparer. What is the probability that the arriving customer will not wait?
Form a frequency distribution and a percentage distribution that have class intervals with the upper class limits $99, $119, and so on.
Consider the sleep habits of med students versus non med students. The study consists of the hours of sleep per day obtained by 25 med students and 30 non-med students. The summarized data is given in the table below. x-bar is the mean hours of sl..
The fill volume of cans produced by a certain machine is normally distributed with mean 12 oz and standard deviation .03 oz. [4] a. What proportion of cans contain less than 12 oz?
question in a group of persons traveling in a bus 6 persons can speak tamil 15 can speak hindi and 6 can speak
If these three components are weighted at 35%, 45%, and 20%, respectively, what is the weighted mean for her course performance?
A sample of 500 respondents in a large metropolitan area was selected to study consumer behavior. Among the questions asked was "do you enjoy shopping for clothing?" Of 240 males, 136 answered yes.
give five potential problemsissues with linear regression and methods for investigating and addressing them. please be
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