The quanto forward price can be computed using the risk-neutral distribution as E(Yx−1). Use Proposition 20.4 to derive the quanto forward price given by equation (23.30).
Answer to relevant QuestionsIn this problem we use the lognormal approximation (see equation (11.14)) to draw one-step binomial trees from the perspective of a yen-based investor. Use the information in Table 23.4. a. Construct a one-step tree for the ...For this problem, use the implied volatilities for the options expiring in January 2005, computed in the preceding problem. Compare the implied volatilities for calls and puts. Where is the difference largest? Why does this ...Compute daily volatilities for 1991 through 2004 for IBM, Xerox, and the S&P 500 index. Annualize by multiplying by √ 252. How do your answers compare to those in Problem 24.1? 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? Using Monte Carlo, simulate the process dr = a(b − r)dt + σdZ, 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 match ...
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