Suppose you write a 1-year cash-or-nothing put with a strike of $50 and a 1-year cash-or-nothing call
Question:
a. What is the 1-year 99% VaR for each option separately?
b. What is the 1-year 99% VaR for the two written options together?
c. What is the 1-year 99% tail VaR for each option separately and the two together?
Step by Step Answer:
The oneyear cash or nothing 50strike put has a premium of 0007024 The cash or nothing 215strike call ...View the full answer
Related Video
A put option is a financial contract that gives the owner the right, but not the obligation, to sell an underlying asset, such as a stock or a commodity, at a predetermined price, known as the strike price, on or before a specific date, known as the expiration date. Put options are used by investors as a form of insurance against a decline in the value of the underlying asset. If an investor expects the value of an asset to fall in the future, they can purchase a put option on that asset. If the value of the asset does fall, the put option will increase in value, allowing the investor to sell the asset at the higher strike price. For example, if an investor owns 100 shares of a stock that is currently trading at $50 per share, they may purchase a put option with a strike price of $45 and an expiration date three months in the future. If the stock price falls to $40 before the expiration date, the investor can exercise the put option and sell their shares for $45 each, even though the market price is only $40. This would allow the investor to limit their losses. It\'s important to note that purchasing a put option involves paying a premium to the seller of the option, and the investor can lose the entire premium if the price of the underlying asset does not decline as expected. Put options are just one type of financial derivative and should only be used by experienced investors who understand the risks involved.
Students also viewed these Banking questions
-
Suppose you write a program that models a card deck. Cards are taken from the top of the deck and given out to players. As cards are returned to the deck, they are placed on the bottom of the deck....
-
Where are stock options traded? What is the exchanges role in the trade?
-
Suppose that put options on a stock with strike prices $30 and $35 cost $4 and $7, respectively. How can the options be used to create (a) a bull spread and (b) a bear spread? Construct a table that...
-
A stream of particles of one size are 80% converted (SCMIash diffusion control, uniform gas environment) on passing through a reactor. If the reactor is made twice the size but with the same gas...
-
In the case of Casteneda v. Partida, it was found that during a period of 11 years in Hidalgo County, Texas, 870 people were selected for grand jury duty and 39% of them were Americans of Mexican...
-
Cash Supplies Land Building Total assets TYPHOON, INCORPORATED Balance Sheet December 31, 2024 Assets Liabilities $ 1,100 Accounts payable $ 3,400 Stockholders' Equity 5,400 Common stock 15,400...
-
The accounting records for ADR, Inc., reflected the following amounts at the end of August 2010: Prepare ADRs multi-step income statement for the fiscal year ended August 31,2010. Cash...... $3,500...
-
On January 1, Year 6, HD Ltd., a building supply company, JC Ltd., a construction company, and Mr. Saeid, a private investor, signed an agreement to carry out a joint operation under the following...
-
Is social responsibility a driver of a corporate competitive advantage? How? Justify your answer using examples from Saudi Market. 3 marks Briefly describe a successful story of a strategic alliance...
-
Grandparents want to make a gift of $100,000 for their grandchild's 20th birthday. How much would have to be invested on the day of their grandchild's birth if their investment could earn (a) 10.5%...
-
Compute the 95% 10-day tail VaR for the position in Problem 26.8.
-
Suppose the 7-year zero-coupon bond has a yield of 6% and yield volatility of 10% and the 10-year zero-coupon bond has a yield of 6.5% and yield volatility of 9.5%. The correlation between the 7-year...
-
When Bohr devised his model for the atom, was he using deductive or inductive reasoning? Explain your answer.
-
XYZ Management is deciding to expand in Quezon, Cebu or Davao, or can be combination of 2 areas. If the company will expand in Quezon, the capital needed is 1 million pesos; if the company will...
-
We have three Suppliers and four Demanders. the Suppliers have inventory of 23, 43, 37 respectively, and the Demanders require 34, 11, 50, 8 respectively. Shipping costs from S1 to D1, D2, D3, D4 are...
-
On an investment bank advisory team designing social impact bonds. According to the attached report, the team is building the connection on James' Place Liverpool's suicide prevention project. The...
-
How can Building Information Modeling (BIM) be integrated with other emerging technologies such as augmented reality (AR) and drones to improve construction site safety and project efficiency ?
-
An investor earns 13.67 percent before tax and is subject to a 10 percent tax on such earnings. Calculate the investor's after-tax rate of return. Round the answer to two decimals in percentage form....
-
In Exercises 1 through 4, use the method of Example 7.4.1 to find the corresponding least-squares line. (0, 1), (2, 3), (4, 2) Data from Example 7.4.1. Use the least-squares criterion to find the...
-
Select the correct answer for each of the following questions. 1. On December 31, 20X3, Saxe Corporation was merged into Poe Corporation. In the business combination, Poe issued 200,000 shares of its...
-
What are the essential differences among demand deposits, savings deposits, and time deposits?
-
What are primary reserves and secondary reserves, and what are they supposed to do?
-
Suppose that a bank holds cash in its vault of $1.4 million, short-term government securities of $12.4 million, privately issued money market instruments of $5.2 million, deposits at the Federal...
-
Townsend Produce agrees to sell 100 crates of lettuce to Metro Grocers under a shipment contract. Townsend arranges for Excel Transport to pick up and deliver the lettuce, which Excel Transport does....
-
Assume an organic compound has a partition coefficient between water and ethyl acetate equal to 8.12. If there are initially 7.10 grams of the compound dissolved in 75.0 mL of water, how many grams...
-
NO. DATE Use the table below Write a Java program that will display the output below. code may vary... For your reference QUANTITY ITEM PRICE 1 Bond Paper (rim) 230 1 Notebook 30 1 1 Printer Ink 5500...
Study smarter with the SolutionInn App