Explain why the writer of an option would prefer an option with a high theta (all other factors equal).
Answer to relevant QuestionsIn implementing a protective put buying strategy, explain the trade-off between the cost of the strategy and the strike price selected. An investor wants to protect against a rise in the market yield on a Treasury bond. Should the investor purchase a put option or a call option to obtain protection? Suppose that a dealer quotes these terms on a five-year swap: fixed-rate payer to pay 4.4% for LIBOR and fixed-rate receiverto pay LIBOR for 4.2%. Answer the below questions. (a) What is the dealer’s bid-asked spread? (b) ...How can an interest-rate collar be created? The manager of a savings and loan association is considering the use of a swap as part of its asset/liability strategy. The swap would be used to convert the payments of its portfolio of fixed-rate residential mortgage loans ...
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