P Bhattacharya
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For me also its butterfly spread
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Exam Feedback November 2019 Part 1 Exam Feedback
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I remember the question said price is expected to go 40% under price 1 or 40% above price 2. I consider these 2 prices as 2 strikes. I consider also 40% is a substantial move. That's why I chose strangle.even my answer was butterfly spread since according to me the question specified trader expected limited volatility therefor strangle or straddle doesn't make sense
I remember the question said price is expected to go 40% under price 1 or 40% above price 2. I consider these 2 prices as 2 strikes. I consider also 40% is a substantial move. That's why I chose strangle.
Yip, maximise profit for 40% move up or down and minimise losses if it stayed in 20% range or something along those lines. I chose butterfly spread but strangle is the correct answer.
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My answer also butterfly onlySame with me.. Thought the same way
I have doubt in down move factor we should not take as. 90 as down move. We should take. 95.I think you remember correctly, this is how I did it:
First up probability:
[e^(2/1)-0.9]/[1.05-0.9] =73.4%
So probability down is 26.6%
Up move step is 3200*1.05=3369
Down step 2970
The value of up move step is 0*73.4%=0
The value of down move is (3200-2970)*26.6%=230*26.6%=61.18
So total value is 61.18 and when you find PV using cont discounting it is 60.6
3300×1.05= 3465
3300 3465×.95 =3300
3135×1.05=3300
3300×.95=3135
and my guess is since this is futures index risk neutral probability should take 1.
and the present value of (3200-3135=65) is 64.XX.which is option c. It is logical guess only.
Exactly the same. Only strangle was volatility long...I remember the question said price is expected to go 40% under price 1 or 40% above price 2. I consider these 2 prices as 2 strikes. I consider also 40% is a substantial move. That's why I chose strangle.
Why should a future Index have a risk neutral prob of one ? The risk neutral Probability is a change in the Probability measure such that you can discount the expected option value with the risk free rate and is derived from the up and down factor..I have doubt in down move factor we should not take as. 90 as down move. We should take. 95.
3300×1.05= 3465
3300 3465×.95 =3300
3135×1.05=3300
3300×.95=3135
and my guess is since this is futures index risk neutral probability should take 1.
and the present value of (3200-3135=65) is 64.XX.which is option c. It is logical guess only.
Why should a future Index have a risk neutral prob of one ? The risk neutral Probability is a change in the Probability measure such that you are able to discount the expected option value with the risk free rate and is derived from the up and down factor..
I have doubt in down move factor we should not take as. 90 as down move. We should take. 95.
3300×1.05= 3465
3300 3465×.95 =3300
3135×1.05=3300
3300×.95=3135
and my guess is since this is futures index risk neutral probability should take 1.
and the present value of (3200-3135=65) is 64.XX.which is option c. It is logical guess only.
Was the binomial question related to a future but not stock?
The risk neutral probability up should that case equal to (1 - D)/(U - D).
I was trapped by the stress alhough I know it.
This exam was really tricky.
P_up=e(r* Delta t)-d /(u-d)Was the binomial question related to a future but not stock?
The risk neutral probability up should that case equal to (1 - D)/(U - D).
I was trapped by the stress alhough I know it.
This exam was really tricky.
Yes i guess given data was about futures index.Was the binomial question related to a future but not stock?
The risk neutral probability up should that case equal to (1 - D)/(U - D).
I was trapped by the stress alhough I know it.
This exam was really tricky.
P_up=e(r* Delta t)-d /(u-d)
In the swcheser notes : « The binomial model can also incorporate the unique characteristics of options on futures. Since futures contracts are costless to enter into, they are considered, in a risk-neutral setting, to be zero growth instruments. To account for this characteristic, ert is simply replaced with a 1. »
As I remember it asked the disadvantages of ccp, especially when a party has the less incentive to monitor the risk of another party because of the ccp taking the risk. I answered moral hazarddoes anyone remember that there is a question about moral hazard or adverse selection? Which one did you take?
Yes moral hazard onlyAs I remember it asked the disadvantages of ccp, especially when a party has the less incentive to monitor the risk of another party because of the ccp taking the risk. I answered moral hazard
As I remember it asked the disadvantages of ccp, especially when a party has the less incentive to monitor the risk of another party because of the ccp taking the risk. I answered moral hazard
yes I chose moral hazard tooYes moral hazard only
Oh it was a future? I remeber it being a Stock underlying (blue book)In the swcheser notes : « The binomial model can also incorporate the unique characteristics of options on futures. Since futures contracts are costless to enter into, they are considered, in a risk-neutral setting, to be zero growth instruments. To account for this characteristic, ert is simply replaced with a 1. »
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