Compute January 12 2004 bid and ask volatilities (using the Black-Scholes implied volatility function) for IBM options expiring January 17. For which options are you unable to compute a plausible implied volatility? Why?
Answer to relevant Questionsa. What is the 1-year bond forward price in year 1? b. What is the price of a call option that expires in 1 year, giving you the right to pay $0.9009 to buy a bond expiring in 1 year? c. What is the price of an otherwise ...For years 2–5, compute the following: a. The forward interest rate, rf , for a forward rate agreement that settles at the time borrowing is repaid. That is, if you borrow at t − 1 at the 1-year rate ˜r, and repay the ...Using Monte Carlo, simulate the process dr = a(b − r)dt + σ√rdZ, assuming that r = 6%, a = 0.2, b = 0.08, φ = 0 and σ = 0.02. Compute the prices of 1-, 2-, and 3-year zero coupon bonds, and verify that your answers ...Consider the expression in equation (26.6). What is the exact probability that, over a 1-day horizon, stock A will have a loss? Using the delta-approximation method and assuming a $10m investment in stock A, compute the 95% and 99% 1-, 10-, and 20-day VaRs for a position consisting of stock A plus one 105-strike put option for each share. Use the ...
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