Project Part III (Static Replication) Suppose on 1-Dec-2020, we need to evaluate an exotic European derivative...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Project Part III (Static Replication) Suppose on 1-Dec-2020, we need to evaluate an exotic European derivative expiring on 15-Jan-2021 which pays: 1 Payoff function: S +1.5 x log(ST) + 10.0 2 "Model-free" integrated variance: OMFT = E Project (2021-22 Term 1) T 3 [f" o² dt] 0 Determine the price of these 2 derivative contracts if we use: 1 Black-Scholes model (what o should we use?) 2 Bachelier model (what o should we use?) 3 Static-replication of European payoff (using the SABR model calibrated in the previous question) 3/6 QF620 Stochastic Modelling in Finance Project Part III (Static Replication) Suppose on 1-Dec-2020, we need to evaluate an exotic European derivative expiring on 15-Jan-2021 which pays: 1 Payoff function: S +1.5 x log(ST) + 10.0 2 "Model-free" integrated variance: OMFT = E Project (2021-22 Term 1) T 3 [f" o² dt] 0 Determine the price of these 2 derivative contracts if we use: 1 Black-Scholes model (what o should we use?) 2 Bachelier model (what o should we use?) 3 Static-replication of European payoff (using the SABR model calibrated in the previous question) 3/6 QF620 Stochastic Modelling in Finance
Expert Answer:
Answer rating: 100% (QA)
Determine the price of these 2 derivative contracts if we use BlackScholes model what should we use Heston model with Parameters 012 06 12 004 x0 004 CoxIngersollRoss model with Parameters 012 06 12 0... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
Students also viewed these mathematics questions
-
The Vanderbilt University Medical Center is representative of many health care delivery systems in the United States today. Even with its long history of success, Vanderbilt faced a $250 million...
-
Suppose that you have tastes for grits and other goods (where the price of other goods is normalized to 1). Assume throughout (unless otherwise stated) that your tastes are quasilinear in grits. A:...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1-5. Ivan's grandfather died and left a portfolio of municipal bonds. In 2012, they pay Ivan...
-
An inductor has a linear change in current from 50 mA to 100 mA in 2 ms and induces a voltage of 160 mV. Calculate the value of the inductor.
-
As of December 31, 2013, Gibbs Company had total cash of $89,000, notes payable of $25,600, and common stock of $41,000. During 2014, Gibbs earned $52,000 of cash revenue, paid $34,000 for cash...
-
Show that there do not exist scalars c1, c2 and c3 such that c1(- 2, 9, 6) + c2(- 3, 2, 1) + c3(1, 1, 5) = (0, 5, 4)
-
Refer to the data for Inland Equipment in P5-40A. However, assume Inland Equipment uses the average cost method. Requirements 1. Prepare a perpetual inventory record using average cost. Round the...
-
1. Based upon your knowledge of health and safety matters and your actual observations of operations that are similar to ours make a list of the potential hazardous conditions employees and others...
-
Wasim takes out a loan on April 17, 2023 for $8,000 at a variable interest rate of 4% annually. On June 25, 2023 the interest rate increases to 4.25% annually. If Wasim repays the loan on September...
-
Drag the labels onto the flowchart to indicate how the body uses food in cellular respiration. View Available Hint(s) ? After food is broken down in the digestive system, it is transported 10 cels...
-
Think about current political movements or campaigns connected to specific geographies. What kinds of economic discussions might be taking place during the upcoming primary and general elections for...
-
Describe the shape of this distribution. 10 8 6 4 2 0 3 - 4 5 6 7
-
In a perfectly symmetrical distribution, when would the mode be different from the mean and median?
-
Describe the relationship between the mean and the median of this distribution. 10 8 6 4 2 0 3 4 5 60 7
-
What are the six factors that determine the auditors required level of understanding of the internal control structure policies and procedures?
-
Describe the relationship between the mode and the median of this distribution. 10 8 6 4 2 0 3 4 5 6 7
-
A company has borrowed 40,500,000TL per annum for 10 years with a monthly capital cost of 45% per annum. With the investment, 1,600,000 units will be produced annually. The production amount will...
-
According during to the IRS, individuals filing federal income tax returns prior to March 31 received an average refund of $1,088 in 2018. Consider the population of "last-minute" filers who mail...
-
A: The answers below correspond to parts (a) through (f) in exercise 25.6: (a) If this is the state of things when the patent runs out, will you change your output level? What happens to your profit?...
-
Suppose, as in end-of-chapter exercise 6.9, you have $400,000 to spend on square feet of housing and all other goods. Assume the same is true for me. A. Suppose again that you initially face a $100...
-
Capital Gains Taxes: Taxes on capital g0ains are applied to income earned on investments that return a profit or capital gain and not on income derived from labor. To the extent that such capital...
-
A cylindrical can \(76 \mathrm{~mm}\) in diameter and \(152 \mathrm{~mm}\) high, weighing \(1.11 \mathrm{~N}\), contains water to a depth of \(76 \mathrm{~mm}\). When this can is placed in water, how...
-
What is the ratio between the viscosities of air and water at \(10^{\circ} \mathrm{C}\) ? What is the ratio between their kinematic viscosities at this temperature and standard barometric pressure?
-
If the 10-ft-long box is floating on the oil-water system, calculate how much the box and its contents must weigh. -8 ft- 2 ft 1 ft P3.71 Oil (SG= 0.80) Water
Study smarter with the SolutionInn App