Question: 1. Stock price today at $100. A binary PUT with strike of 85 is priced at $0.15. What is the implied standard deviation? 2. Value

1. Stock price today at $100. A binary PUT with strike of 85 is priced at $0.15. What is the implied standard deviation?

2. Value at Risk (VaR)

A VaR is the loss a portfolio is expected to lose at a certain frequency. For example a 1% VaR is expected to happen at 1% frequency, or once every 100 time periods.

A strategy you developed is expected to generate 10 bps of mean return with 100 bps of stdev for return at daily frequency.

a. If you manage $100M, What is $ value for 5%, 1%, and 0.1% VaR for the strategy on a daily basis?

b. If your trading desk's 1% VaR is set at $10M by the chief risk officer of the company, how much money can you deploy for your strategy?

Step by Step Solution

★★★★★

3.38 Rating (157 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

1 The implied standard deviation is 15 Let P be the price of th... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

How much money can Barry and Mary gift to their children in 2013 without any gift tax liability?

How much money can Barry and Mary gift to their grandchildren?

How much money can you borrow at 12% interest compounded semiannually if the loan is to be repaid at half year intervals for 10 years and you can afford to pay $1000 per half- year ?

Assume that today is December 31, 2008, and that the following information applies to Vermeil Airlines: After-tax operating income [EBIT(1 T)] for 2009 is expected to be $500 million. The...

Develop a worksheet simulation for the following problem. The management of Madeira Manufacturing Company is considering the introduction of a new product. The fixed cost to begin the production of...

The space heating of a facility is accomplished by natural gas heaters that are 80 percent efficient. The compressed air needs of the facility are met by a large liquid-cooled compressor. The coolant...

Your client has $100,000 invested in stock A. She would like to build a two-stock portfolio by investing another $100,000 in either stock B or C. She wants a portfolio with an expected return of at...

Waldo Companys current stock price is $36, and its last dividend was $2.40. IN view of Waldos strong financial position and its consequent low risk, its required rate of return is only 12%. If...

The Corner Drug Store fills prescriptions for a popular childrens antibiotic, amoxicillin. The daily demand for amoxicillin is normally distributed, with a mean of 200 ounces and a standard deviation...

Uniform Distribution You believe stock price will follow uniform distribution with mean of 100 and MAD 20. You are pricing a CALL option with strike at 110. a. what is the mean and range of the...

The following output was obtained. a. What is the sample size? b. Compute the value of R2. c. Compute the multiple standard error of estimate. d. Conduct a global test of hypothesis to determine...

In late 2005 we can expect the huge Airbus A380 super-jumbo jet to take off on its maiden test flight, before entering service in Spring 2006. Although the absolute costs of building the 555- to...

Question content area top Part 1 By influencing the drivers of net profit margin ratio and total asset turnover, management devises strategies to improve each one, thus decreasing the ROA. Question...

a. What is the equation of the least-squares regression line? Be sure to define any symbols you use. b. Interpret the slope of the least-squares line. c. One student reported that her 10-year-old car...

Convert the following regular expressions to NFAs using the procedure given in Theorem 1.54. In all parts, = {a, b}. a. a(abb) * [ b b. a + [ (ab) + c. (a [ b + )a + b +

The generator at a large power plant has an output of 1,000,000 kW at 24,000 V. (a) If it were a DC generator, what would be the current in it? (b) What is its energy output each dayin joules and in...

Let 2 be the same as in Problem 1.33. Consider the top and bottom rows to be strings of 0s and 1s, and let E = {w * 2 | the bottom row of w is the reverse of the top row of w}. Show that E is not...

Brand had been squatting on land adjacent to a local river for over three years. She had moved a mobile home onto it, fenced it, and farmed it. Alioto offered her $10,000 for it. What type of deed...

A tire company is incorporated and has its principal place of business in Asia. The company assembles all its tires in Asia and sells them throughout the world. The company purchases tire valves from...

(((PLEASE SOLVE B ONLY))) Chapter 8 - Master it! In practice, the use of the dividend discount model is refined from the method we presented in the textbook. Many analysts will estimate the dividend...

EXCEL HELP! I already answered the question ( look at my screenshots) however the 2nd part of the question states to "set up a simple excel data table" as you can see I did multiple excel data tables...

A) How much is the cash and retained earning in 2019? B) Bigquiz can borrow at 10% interest rate, if the company starts to borrow, do you think borrowing will increase or decrease the firms ROE? Why?...

3. 3: Stocks and Their Valuation: Corporate Valuation Model The recognition that dividends are dependent on earnings, so a reliable dividend forecast is based on an underlying forecast of the firm's...

The recognition that dividends are dependent on eamings, so a relisble dividend forecast is based on an underlying forecast of the firm's future sales, costs and capital requirements, has led to an...

Chapter 8 - Master it! In practice, the use of the dividend discount model is refined from the method we presented in the textbook. Many analysts will estimate the dividend for the next Suppose you...