The IVF model correctly values any derivative whose payoff depends on the value of the underlying asset

Question:

"The IVF model correctly values any derivative whose payoff depends on the value of the underlying asset at only one time." Explain why.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Options Futures and Other Derivatives

ISBN: 978-0134472089

10th edition

Authors: John C. Hull

See More Books

Question Posted: Feb 12, 2018 12:27 PM

See More Questions

"The IVF model does not necessarily get the evolution of the volatility surface correct." Explain this statement.
On May 26, 1991, Svensk Exportkredit (SEK), the Swedish export credit corporation, issued a Bull Indexed Silver Opportunity Note (BISON). Consider an extended version of this BISON issue that has the...
The common stock of Sophia Enterprises serves as the underlying asset for the following derivative securities: (1) forward contracts, (2) European-style call options, and (3) European-style put...
1. Using a diagram of utility maximization, show: a. The income effect of price change b. The substitution effect of price change
A cylinder with a frictionless, movable piston like that shown in Fig. 19.5 contains a quantity of helium gas. Initially the gas is at a pressure of 1.00 X 105 Pa, has a temperature of 300 K, and...
In Exercises determine any differences between the curves of the parametric equations. Are the graphs the same? Are the orientations the same? Are the curves smooth? Explain. (a) (b) x = t + 1, y = 1
List and discuss four characteristics of an effective sales presentation or demonstration.
A critical dimension of the service quality of a call center is the wait time of a caller to get to a sales representative. Periodically, random samples of three customer calls are measured for tune....
The median-of-medians algorithm for selecting the kth smallest element in an array A[1, n] is as follows. Divide A into n/5 subarrays, each of size 5, then get the medians of these subarrays and find...
This year Jeff earned $650,000 and used it to purchase land in joint tenancy with a right of survivorship with Mary. Has Jeff made a taxable gift to Mary and, if so, in what amount? What is your...
Write down the equations for simulating the path followed by the asset price in the stochastic volatility model in equation (27.2) and (27.3).
How is the market price of risk defined for a variable that is not the price of an investment asset?
A small body of mass m = 0.30 kg starts sliding down from the top of a smooth sphere of radius R = 1.00 m. The sphere rotates with a constant angular velocity = 6.0 rad/s about a vertical axis...
Fab fashions had in-store sales of $12,000. its employees were paid $9000, the cost of doing business was $1500 abd rent was $5500. its on-line business had revenues of $3,000. What was the profit...
Payment of the following year. At the end of 2022, Jonathan Willer's various types of income and deductions are as follows: Employment Income Eligible dividend received from a CPC Eligible dividend...
Materials handling Machine maintenance Setups $ 2 4 1 , 6 8 0 Inspections $ 1 3 3 , 9 2 0 Overhead Costs Activity - cost driver 9 8 , 0 0 0 orders 2 0 , 0 0 0 maintenance hours 4 5 , 6 0 0 setups 2 1...
What triggered the downsizing phase in the U.S. hospital industry during the 1980s?
Companies wishing to minimize income taxes should use which inventory cost flow method during times when prices are rising?
Your assistant prepared the following adjusted trial balance data for Commerce Company on December 31, 2020. The accounts are arranged in alphabetical order. Required a. Calculate the net income for...
The following information is available for Partin Company: Sales $598,000 Sales Returns and Allowances 20,000 Cost of Goods Sold 398,000 Selling Expense 69,000 Administrative Expense 25,000 Interest...
What is the credit default swap spread in Problem 23.8 if it is a binary CDS?
What is the credit default swap spread in Problem 23.8 if it is a binary CDS?
How does a five-year n th-to-default credit default swap work. Consider a basket of 100 reference entities where each reference entity has a probability of defaulting in each year of 1%. As the...
For each of the following: identify all critical numbers and use these to determine all region(s) where the function is increasing as well as all region(s) where the function is decreasing. Then...
Determine the most suitable data structure for the above graph and show it adjacency representation. (5 markah/marks)
The table gives the outdoor temperatures observed by a science student on a spring day. Draw a graph of the data, and find the average rate of change of temperature between the following times: a)...

The IVF model correctly values any derivative whose payoff depends on the value of the underlying asset

Question:

Step by Step Answer:

The IVF model ensures that the riskneutral probability distribution of t...View the full answer

Options Futures and Other Derivatives

Students also viewed these Corporate Finance questions