Question 1 An asset manager has a long position of 8,500 shares of company QTA. The...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Question 1 An asset manager has a long position of 8,500 shares of company QTA. The asset manager wants to hedge 55% of the market risk associated with this position. For that purpose, it has been decided to use put options with shares of company QTA as underlying. The absolute value of the delta of this put option is 0.35. a) What type of risk does delta measure and what are its limitations as a risk measure? Explain your answer. [10 marks] b) Give an example, explaining its rationale and quantifying it, of a hedging strategy based on the use of put options that the asset manager can implement to reach his hedging objective. [10 marks] c) Is the following statement "The purpose of a proper risk management strategy, with respect to a certain risk factor, should be to fully eliminate the exposure to that risk factor" true or false? Explain your answer. [10 marks] Question 1 An asset manager has a long position of 8,500 shares of company QTA. The asset manager wants to hedge 55% of the market risk associated with this position. For that purpose, it has been decided to use put options with shares of company QTA as underlying. The absolute value of the delta of this put option is 0.35. a) What type of risk does delta measure and what are its limitations as a risk measure? Explain your answer. [10 marks] b) Give an example, explaining its rationale and quantifying it, of a hedging strategy based on the use of put options that the asset manager can implement to reach his hedging objective. [10 marks] c) Is the following statement "The purpose of a proper risk management strategy, with respect to a certain risk factor, should be to fully eliminate the exposure to that risk factor" true or false? Explain your answer. [10 marks]
Expert Answer:
Answer rating: 100% (QA)
a Delta measures the amount of risk associated with the underlying asset The limitati... View the full answer
Related Book For
Organizational behavior
ISBN: 9780077379438
5th edition
Authors: Steven L. McShane, Mary Ann Von Glinow
Posted Date:
Students also viewed these finance questions
-
Use the Tukey-Kramer procedure to identify which class or classes the student who wants a high mark should avoid, and which class or classes the student should prefer. Use a 95% confidence level. Is...
-
Some systems automatically open a file when it is referenced for the first time, and close the file when the job terminates. Discuss the advantages and disadvantages of this scheme as compared to the...
-
An asset with a 8-year ADR class life costs $50,000 and was purchased on January I, 2001. Calculate any depreciation recapture, ordinary losses, or capital gains associated with selling the equipment...
-
Use the following information for Questions 1 a) and 1 b): a) At the beginning of the year, Juju Sdn. Bhd. estimated the following: Polishing Department Overhead Direct labour hours Kiln hours Firing...
-
Sasha promised to pay $3000 in 212 years and $5000 in five years. If she replaces those payments with a payment of $4000 in four years and three months, and money is worth 10% com- pounded quarterly,...
-
Change three of the 6s in the data set to 4s. How does this change affect the sample mean and sample standard deviation? a. Write the first three columns of a frequency distribution. b. Find the...
-
Consider a source of flow in \(3 \mathrm{D}\) of strength \(S\) (dimensions \(L^{3} / T\) ), Then the flow is axisymmetric and independent of the \(\theta\)-direction in the spherical coordinate...
-
The 2013 Intel Annual Report can be found at the following Web site: www.pearsonhighered.com/fraser. Using the annual report, answer the following questions: (a) Using the Intel Annual Report,...
-
An electricity company pays a dividend $ 1 . 6 4 per share and the share price is $ 2 7 . a ) If the investors believe that the dividend growth rate will be 3 % annually, what will be the yield that...
-
Jackie Wengler, owner of Wengler Home Decorating Service, has requested that you prepare from the following balances (a) An income statement for June 201X, (b) A statement of owner?s equity for June,...
-
You are given below the daily wages paid to the workers in the two factories X and Y: Daily 12-14 14-16 16-18 18-20 20-22 22-24 24-26 Wages Factory X 15 30 44 60 40 14 7 Factory Y 25 40 60 35 12 15 5...
-
1. Based on the most recent figures, which of the following categories of industry classifications has the greatest profits? Financial or nonfinancial Looking at the most recent figures which are Q3...
-
You need $ 2 , 0 0 0 , 0 0 0 to fund your retirement in 4 0 years. If your retirement plan has an annualyield of 6 % , how much do you need to contribute to your retirement fund each paycheck (...
-
A 2.0 kg block slides along a frictionless table at 15 m/s. It collides and bounces off a second block of mass 3.0 kg attached to a spring of spring constant 400 N/m. What is the maximum compression...
-
what ways does the protagonist's internal conflict contribute to the development of the story's themes and overarching narrative arc?
-
what biological evidence is and why is it important? give an example? What are three types of biological evidence?
-
For the rational function f(x) a) Find its x- and y- intercepts. x+1 x-9 b) Find its vertical asymptote and test the behaviour of f(x) on either side of the vertical asymptote. Use limits!!!
-
A police officer pulls you over and asks to search your vehicle because he suspects you have illegal drugs inside your car. Since he doesn't have reasonable suspicion to search your car, legally he...
-
Intuition is both an emotional experience and an non conscious analytic process. One problem, however, is that not all emotions signaling that there is a problem or opportunity represent intuition....
-
1. What changes has Macys introduced in terms of the four elements of organizational structure? 2. What contingencies suggest that Macys new organizational structure is appropriate for its...
-
Organizational injustice can occur in the classroom as well as in the workplace. Identify classroom situations in which you experienced feelings of injustice. What can instructors do to maintain an...
-
A nickel crystals work function is measured to be 5.22 eV at 25C. As the temperature increases by 300C, the work function drops by 50 meV. By how much does this shift the threshold wavelength for...
-
A crystal sample of bacteriorhodpsin, a light-sensitive protein found in halobacteria that responds to light energy, has crystal planes separated by 0.20 nm. If a beam of 11 keV x rays illuminates a...
-
Investigators have created structures consisting of linear chains of ionized atoms on a smooth surface. Electrons are restricted to travel along the chain. The energy levels of the electrons match...
Study smarter with the SolutionInn App