China After the Subprime Crisis
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FINANCIAL DERIVATIVES SAMPLE QUESTIONS Q1. a Strangle Is an Investment Strategy That Combines A. a Call and a Put for the Same
FINANCIAL DERIVATIVES SAMPLE QUESTIONS Q1. A strangle is an investment strategy that combines a. A call and a put for the same expiry date but at different strike prices b. Two puts and one call with the same expiry date c. Two calls and one put with the same expiry dates d. A call and a put at the same strike price and expiry date Answer: a. Q2. A trader buys 2 June expiry call options each at a strike price of Rs. 200 and Rs. 220 and sells two call options with a strike price of Rs. 210, this strategy is a a. Bull Spread b. Bear call spread c. Butterfly spread d. Calendar spread Answer c. Q3. The option price will ceteris paribus be negatively related to the volatility of the cash price of the underlying. a. The statement is true b. The statement is false c. The statement is partially true d. The statement is partially false Answer: b. Q 4. A put option with a strike price of Rs. 1176 is selling at a premium of Rs. 36. What will be the price at which it will break even for the buyer of the option a. Rs. 1870 b. Rs. 1194 c. Rs. 1140 d. Rs. 1940 Answer b. Q5 A put option should always be exercised _______ if it is deep in the money a. early b. never c. at the beginning of the trading period d. at the end of the trading period Answer a. Q6. Bermudan options can only be exercised at maturity a. -
307439 Ferdig Master Thesis
Master's Thesis Using Derivatives And Structured Products To Enhance Investment Performance In A Low-Yielding Environment - COPENHAGEN BUSINESS SCHOOL - MSc Finance And Investments Maria Gjelsvik Berg P˚al-AndreasIversen Supervisor: Søren Plesner Date Of Submission: 28.04.2017 Characters (Ink. Space): 189.349 Pages: 114 ABSTRACT This paper provides an investigation of retail investors' possibility to enhance their investment performance in a low-yielding environment by using derivatives. The current low-yielding financial market makes safe investments in traditional vehicles, such as money market funds and safe bonds, close to zero- or even negative-yielding. Some retail investors are therefore in need of alternative investment vehicles that can enhance their performance. By conducting Monte Carlo simulations and difference in mean testing, we test for enhancement in performance for investors using option strategies, relative to investors investing in the S&P 500 index. This paper contributes to previous papers by emphasizing the downside risk and asymmetry in return distributions to a larger extent. We find several option strategies to outperform the benchmark, implying that performance enhancement is achievable by trading derivatives. The result is however strongly dependent on the investors' ability to choose the right option strategy, both in terms of correctly anticipated market movements and the net premium received or paid to enter the strategy. 1 Contents Chapter 1 - Introduction4 Problem Statement................................6 Methodology...................................7 Limitations....................................7 Literature Review.................................8 Structure..................................... 12 Chapter 2 - Theory 14 Low-Yielding Environment............................ 14 How Are People Affected By A Low-Yield Environment?........ 16 Low-Yield Environment's Impact On The Stock Market........ -
11 Option Payoffs and Option Strategies
11 Option Payoffs and Option Strategies Answers to Questions and Problems 1. Consider a call option with an exercise price of $80 and a cost of $5. Graph the profits and losses at expira- tion for various stock prices. 73 74 CHAPTER 11 OPTION PAYOFFS AND OPTION STRATEGIES 2. Consider a put option with an exercise price of $80 and a cost of $4. Graph the profits and losses at expiration for various stock prices. ANSWERS TO QUESTIONS AND PROBLEMS 75 3. For the call and put in questions 1 and 2, graph the profits and losses at expiration for a straddle comprising these two options. If the stock price is $80 at expiration, what will be the profit or loss? At what stock price (or prices) will the straddle have a zero profit? With a stock price at $80 at expiration, neither the call nor the put can be exercised. Both expire worthless, giving a total loss of $9. The straddle breaks even (has a zero profit) if the stock price is either $71 or $89. 4. A call option has an exercise price of $70 and is at expiration. The option costs $4, and the underlying stock trades for $75. Assuming a perfect market, how would you respond if the call is an American option? State exactly how you might transact. How does your answer differ if the option is European? With these prices, an arbitrage opportunity exists because the call price does not equal the maximum of zero or the stock price minus the exercise price. To exploit this mispricing, a trader should buy the call and exercise it for a total out-of-pocket cost of $74. -
Straddles and Strangles to Help Manage Stock Events
Webinar Presentation Using Straddles and Strangles to Help Manage Stock Events Presented by Trading Strategy Desk 1 Fidelity Brokerage Services LLC ("FBS"), Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917 690099.3.0 Disclosures Options’ trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options, and call 800-544- 5115 to be approved for options trading. Supporting documentation for any claims, if applicable, will be furnished upon request. Examples in this presentation do not include transaction costs (commissions, margin interest, fees) or tax implications, but they should be considered prior to entering into any transactions. The information in this presentation, including examples using actual securities and price data, is strictly for illustrative and educational purposes only and is not to be construed as an endorsement, or recommendation. 2 Disclosures (cont.) Greeks are mathematical calculations used to determine the effect of various factors on options. Active Trader Pro PlatformsSM is available to customers trading 36 times or more in a rolling 12-month period; customers who trade 120 times or more have access to Recognia anticipated events and Elliott Wave analysis. Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most comfortable with. As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. -
Payoffs from Neutral Option Strategies: a Study of USD-INR Market
Journal of Economics, Management and Trade 21(12): 1-11, 2018; Article no.JEMT.44988 ISSN: 2456-9216 (Past name: British Journal of Economics, Management & Trade, Past ISSN: 2278-098X) Payoffs from Neutral Option Strategies: A Study of USD-INR Market Avneet Kaur1*, Sandeep Kapur1 and Mohit Gupta1 1School of Business Studies, Punjab Agricultural University, India. Authors’ contributions This work was carried out in collaboration between all authors. Authors AK and SK designed the study. Authors AK and MG performed the statistical analysis. Author AK wrote the protocol and wrote the first draft of the manuscript. Authors AK, SK and MG managed the analyses of the study. Author AK managed the literature searches. All authors read and approved the final manuscript. Article Information DOI: 10.9734/JEMT/2018/44988 Editor(s): (1) Dr. Afsin Sahin, Professor, Department of Banking School of Banking and Insurance, Ankara Haci Bayram Veli University, Turkey. Reviewers: (1) Imoisi Anthony Ilegbinosa, Edo University, Iyamho, Nigeria. (2) R. Shenbagavalli, India. Complete Peer review History: http://www.sciencedomain.org/review-history/27321 Received 05 September 2018 Original Research Article Accepted 07 November 2018 Published 20 November 2018 ABSTRACT Aims: The present study has tried to assess the profitability of payoffs from adopting neutral option strategies on USD-INR. Study Design: The study was carried out using daily closing values of the US Dollar-Indian Rupee current future rate available on National Stock Exchange of India (NSE) for the period starting from 29th October 2010 (the start of currency options market in NSE) to 30th June 2016. Methodology: The present study has tried to fill the gap of assessing the profitability of payoffs from adopting neutral options strategies on USD-INR. -
An Introduction to the VIX Index and Volatility Instruments Alexander Ryvkin Pace University
Pace University DigitalCommons@Pace Honors College Theses Pforzheimer Honors College 2019 Volatility Products and their Uses: An Introduction to the VIX Index and Volatility Instruments Alexander Ryvkin Pace University Follow this and additional works at: https://digitalcommons.pace.edu/honorscollege_theses Part of the Business Commons Recommended Citation Ryvkin, Alexander, "Volatility Products and their Uses: An Introduction to the VIX Index and Volatility Instruments" (2019). Honors College Theses. 230. https://digitalcommons.pace.edu/honorscollege_theses/230 This Thesis is brought to you for free and open access by the Pforzheimer Honors College at DigitalCommons@Pace. It has been accepted for inclusion in Honors College Theses by an authorized administrator of DigitalCommons@Pace. For more information, please contact [email protected]. Volatility Products and Their Uses 1 Volatility Products and their Uses An Introduction to the VIX Index and Volatility Instruments Pace University, Lubin School of Business Pforzheimer Honors College Majoring in Finance Presenting May 9th, 2019 Graduating May 18th, 2019 Examiner: Andrew Coggins By Alexander Ryvkin Volatility Products and Their Uses 2 Volatility Products and Their Uses 3 Abstract Volatility instruments are complex investment products that can be used to hedge or speculate based on changes in market sentiment and fluctuations in the S&P 500. These products offer a unique approach to protecting one’s portfolio and making strategic bets on future market volatility. However, lack of understanding of these products can be potentially dangerous as they can change dramatically in value within extremely short time-frames. Investors must be wary of using these products improperly; failure to adequately assess the risk of using volatility products can deliver devastating losses to one’s portfolio. -
CHAPTER 20 Financial Options
CHAPTER 20 Financial Options Chapter Synopsis 20.1 Option Basics A financial option gives its owner the right, but not the obligation, to buy or sell a financial asset at a fixed price on or until a specified future date. A call option gives the owner the right to buy an asset. A put option gives the owner the right to sell the asset. When a holder of an option enforces the agreement and buys or sells the asset at the agreed-upon price, the holder is said to be exercising an option. The option buyer, or holder, holds the right to exercise the option and has a long position in the contract. The option seller, or writer, sells (or writes) the option and has a short position in the contract. The exercise, or strike, price is the price the contract allows the owner to buy or sell the asset. The most commonly traded options are written on stocks; however, options on other financial assets also exist, such as options on stock indices like the S&P 500. Using an option to reduce risk is called hedging. Options can also be used to speculate, or bet on the future price of an asset. American options allow their holders to exercise the option on any date up to and including a final date called the expiration date. European options allow their holders to exercise the option only on the expiration date. Although most traded options are American, European options trade in a few circumstances. For example, European options written on the S&P 500 index exist. -
An Introduction to Option Strategies
Jul 2019 An Introduction to Option Strategies: Covered Call & Short Strangle July 2019 Hang Seng Indexes – Research Paper www.hsi.com.hk 1 TABLE OF CONTENTS EXECUTIVE SUMMARY .............................................................................................. 3 INTRODUCTION .......................................................................................................... 4 UNDERSTANDING THE HONG KONG OPTIONS MARKET ...................................... 4 Open Interest .......................................................................................................... 4 Volume .................................................................................................................... 6 Premium .................................................................................................................. 8 COVERED CALL STRATEGY ................................................................................... 12 Concept ................................................................................................................. 12 Application of the Covered Call Strategy in Hong Kong .................................... 13 SHORT STRANGLE STRATEGY .............................................................................. 19 Concept ................................................................................................................. 19 Application of the Short Strangle Strategy in Hong Kong ................................. 19 CONCLUSION .......................................................................................................... -
Order Execution and Placement Policy
Order Execution and Placement Policy Version Effective Date 1.2 30 April 2019 Contents Section 1. Introduction ............................................................................................. 3 1.1 Purpose ................................................................................................................................... 3 1.2 Scope ....................................................................................................................................... 3 1.3 Specific client instructions ..................................................................................................... 4 1.4 Restricted counterparty requirements ................................................................................ 4 1.5 Trading outside a trading venue .......................................................................................... 4 1.6 Delegated portfolio management and execution .............................................................. 4 Section 2. Best Execution ......................................................................................... 6 Section 3. Execution Factor Evaluation ................................................................... 8 Section 4. The Execution Process ........................................................................... 10 4.1 Execution venues and trading venues ............................................................................... 10 4.2 Agency or principal ............................................................................................................. -
The Empirical Robustness of FX Smile Construction Procedures
Centre for Practiicall Quantiitatiive Fiinance CPQF Working Paper Series No. 20 FX Volatility Smile Construction Dimitri Reiswich and Uwe Wystup April 2010 Authors: Dimitri Reiswich Uwe Wystup PhD Student CPQF Professor of Quantitative Finance Frankfurt School of Finance & Management Frankfurt School of Finance & Management Frankfurt/Main Frankfurt/Main [email protected] [email protected] Publisher: Frankfurt School of Finance & Management Phone: +49 (0) 69 154 008-0 Fax: +49 (0) 69 154 008-728 Sonnemannstr. 9-11 D-60314 Frankfurt/M. Germany FX Volatility Smile Construction Dimitri Reiswich, Uwe Wystup Version 1: September, 8th 2009 Version 2: March, 20th 2010 Abstract The foreign exchange options market is one of the largest and most liquid OTC derivative markets in the world. Surprisingly, very little is known in the aca- demic literature about the construction of the most important object in this market: The implied volatility smile. The smile construction procedure and the volatility quoting mechanisms are FX specific and differ significantly from other markets. We give a detailed overview of these quoting mechanisms and introduce the resulting smile construction problem. Furthermore, we provide a new formula which can be used for an efficient and robust FX smile construction. Keywords: FX Quotations, FX Smile Construction, Risk Reversal, Butterfly, Stran- gle, Delta Conventions, Malz Formula Dimitri Reiswich Frankfurt School of Finance & Management, Centre for Practical Quantitative Finance, e-mail: [email protected] Uwe Wystup Frankfurt School of Finance & Management, Centre for Practical Quantitative Finance, e-mail: [email protected] 1 2 Dimitri Reiswich, Uwe Wystup 1 Delta– and ATM–Conventions in FX-Markets 1.1 Introduction It is common market practice to summarize the information of the vanilla options market in the volatility smile table which includes Black-Scholes implied volatili- ties for different maturities and moneyness levels. -
Binomial Trees • Stochastic Calculus, Ito’S Rule, Brownian Motion • Black-Scholes Formula and Variations • Hedging • Fixed Income Derivatives
Pricing Options with Mathematical Models 1. OVERVIEW Some of the content of these slides is based on material from the book Introduction to the Economics and Mathematics of Financial Markets by Jaksa Cvitanic and Fernando Zapatero. • What we want to accomplish: Learn the basics of option pricing so you can: - (i) continue learning on your own, or in more advanced courses; - (ii) prepare for graduate studies on this topic, or for work in industry, or your own business. • The prerequisites we need to know: - (i) Calculus based probability and statistics, for example computing probabilities and expected values related to normal distribution. - (ii) Basic knowledge of differential equations, for example solving a linear ordinary differential equation. - (iii) Basic programming or intermediate knowledge of Excel • A rough outline: - Basic securities: stocks, bonds - Derivative securities, options - Deterministic world: pricing fixed cash flows, spot interest rates, forward rates • A rough outline (continued): - Stochastic world, pricing options: • Pricing by no-arbitrage • Binomial trees • Stochastic Calculus, Ito’s rule, Brownian motion • Black-Scholes formula and variations • Hedging • Fixed income derivatives Pricing Options with Mathematical Models 2. Stocks, Bonds, Forwards Some of the content of these slides is based on material from the book Introduction to the Economics and Mathematics of Financial Markets by Jaksa Cvitanic and Fernando Zapatero. A Classification of Financial Instruments SECURITIES AND CONTRACTS BASIC SECURITIES DERIVATIVES -
Impact Study on the Proposed Frameworks for Market Risk and CVA Risk
Basel Committee on Banking Supervision Instructions: Impact study on the proposed frameworks for market risk and CVA risk July 2015 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2015. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 978-92-9197-190-9 (print) ISBN 978-92-9197-191-6 (online) Contents 1. Introduction ...................................................................................................................................................................... 4 1.1 General ................................................................................................................................................................................ 4 1.2 Fundamental Review of the Trading Book (FRTB).............................................................................................. 5 1.3 Credit Valuation Adjustment (CVA) ......................................................................................................................... 7 2. General Info ....................................................................................................................................................................... 8 2.1 Panel A: General bank data ......................................................................................................................................... 9 2.2 Panel B: Breakdown of total accounting CVA and DVA .................................................................................