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Study Session 17: Derivatives

Option's pricing - anomaly?

Hello everyone :)

I have a question with regard to the option pricing - not really a CFA I level topic but I hope someone will help me to understand the issue.

Lets assume situation below (which has actually happened in the past):

Current spot exchange-rate for TRY/EUR = 6.8. Below we have following put options and its prices:

- 1-day PUT 8.80 (premium of 2.00 TRY for every EUR)

- 1-month PUT 8.80  (premium of 1.87 TRY for each EUR)

- 12-month PUT 8.80 (premium 0.80 TRY for every EUR) 

Derivatives Replication

Hello.
Can someone give a numerical example regarding replication of derivatives?

Thanks.

Put-Call Parity question

I understand that when the put-call parity equation is rearranged to be p = c - S + X/(1+r)T, this means long put = long call, short asset, long bond.  My question is regarding the “short asset”.  Does shorting the asset in this equation mean that the analyst take either of these 2 positions to short the asset?…

  1. Selling a call option (short the position and short the asset)
  2. Buying a put option (long the position and short the asset)

Payoffs in Futures

Is it true that value of futures don’t consider present value of profit unlike forwards. I mean do the mark to market payouts consider time value? 

Thanks for contributions

Arbitrage - I got the answer but could I prove with math from dat?

The question is below.  I get the answer given the concept of arbitrage, but how would I prove this out mathematically from the data easily?  

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An analyst determines that a portfolio with a 35% weight in Investment P and a 65% weight in Investment Q will have a standard deviation of returns equal to zero.

Future Contracts

(1) Is a future contract American or European by nature?

(2) Can a future converge to the spot price even before expiry?

(3) Can a future contract be sold before expiry?

The Nature of a Future Contract

(1) Is a future contract American or European by nature?

(2) Can a future converge to the spot price even before expiry?

(3) Can a future contract be sold before expiry?

Future contracts

I want to ask about future contracts.How the profit is calculated and the position is closed?.suppose I entered in a contract worth $100(agreed price) delivery:after two months.The inital margin is 20% which is $20.Lets say price of contracts rises to $120 and now i want to lock that profit what can I do and if I sold that contract to someone what amount will he pay me?

Derivatives, Am I right?

Is it correct?

Call 

  • no cash flows: Pa=Pe
  • cash flows: Pa>Pe

Put

  • no cash flows:Pa>Pe
  • cash flows:Pa>Pe

Pa-price of american option Pe- price of european o