# Question: BMO Nesbitt believes that market volatility will be 20 percent

BMO Nesbitt believes that market volatility will be 20 percent annually for the next three years. Three- year at- the- money call and put options on the market index sell at an implied volatility of 22 percent. What options portfolio can BMO Nesbitt establish to speculate on its volatility belief without taking a bullish or bearish position on the market? Using BMO Nesbitt’s estimate of volatility, three- year at- the- money options have N (d1) =.6.

## Relevant Questions

Which of the following securities should sell at a greater price? a. A 10-year Canada bond with a 9 percent coupon rate versus a 10-year Canada bond with a 10 percent coupon rate b. A three-month maturity call option with ...A U. S. Treasury bill with 90-day maturity sells at a bank discount yield of 3 percent. a. What is the price of the bill? b. What is the 90-day holding period return of the bill? c. What is the bond equivalent yield of ...Suppose that Scotia Capital sells call options on $ 1.25 million worth of a stock portfolio with beta = 1.5. The option delta is .8. It wishes to hedge out its resultant exposure to a market advance by buying market index ...You hold an $ 8 million stock portfolio with a beta of 1.0. You believe that the risk- adjusted abnormal return on the portfolio (the alpha) over the next three months is 2 percent. The S& P/ TSX 60 index currently is at 800 ...Suppose a Canadian investor wishes to invest in a British firm currently selling for £ 40 per share. The investor has $ 10,000 to invest, and the current exchange rate is $ 2/£. a. How many shares can the investor ...Post your question