-->

Thursday, July 12, 2012

derivatives

If you order your custom term paper from our custom writing service you will receive a perfectly written assignment on derivatives. What we need from you is to provide us with your detailed paper instructions for our experienced writers to follow all of your specific writing requirements. Specify your order details, state the exact number of pages required and our custom writing professionals will deliver the best quality derivatives paper right on time.

Out staff of freelance writers includes over 120 experts proficient in derivatives, therefore you can rest assured that your assignment will be handled by only top rated specialists. Order your derivatives paper at affordable prices with Live Paper Help!



Derivatives and Risk Management


Assignment 1 � 1st Oct 00


Example 1.5


The example given in section 1.7 of the text book is a Range or Flexible Forward. The meaning of this clearly comes out in the example. The person who buys this forward has only two prices to pay, known as the upper band and the lower band, depending upon whether the then spot price is greater or lower than the band respectively. If the price is in between the bands, the person pays actual spot rate applicable then.


livepaperhelp.com



Clearly this is a combination of two options


1) One is to Buy a call option at the higher price also known as upper band


) And another is to Sell a put option at the lower price known as lower band


The premium should be same in both the cases.


Let us see the example between US Dollar ($) and Pound Sterling (£)


Spot Price Put Option


@ 1.400 Call Option


@ 1.4600 Comments


SP =1.400 Exercised Expires buy at 1.400


1.400SP1.4600 Expires Expires Market Rate


SP =1.4600 Expires Exercised buy at 1.4600


This is called a forward contract because if the band width is zero, its value becomes zero and functions as a simple forward contract.


Example 1.1 (Using DerivaGem)


Given values are put into the s/w as given. Exchange rate volatility=15% p.a., Dollar risk-free rate = 5% p.a., Sterling risk-free rate = 6.4% p.a., time=0.5 years, Exercise Price = 1.4.


Then, (DerivaGem gives)


Value of the Put option = 0.048555.


Value of the Call Option = 0.01854. Since, these two values are not matching, we adjust the upper end of the band so that the contract has zero value initially.


After doing that we get the new upper band at 1.455 instead of 1.4600


Thus, when we adjust the upper band of 1.4600 to arrive at the value equal to the put option, we get the required upper band is 1.455.


Example 1.


Consider both the scenarios faced by the trader


The gold dealer first borrows gold for $50 at the given 6% p.a. The amount he has to pay after a year become $50+ 6%50$ = $65


The gold dealer next sells gold for $4 and invests the same amount at 5.5% p.a. After a year he is expected to get back $4+$505.5% = $6.65


Hence, for no arbitrage has to take place in the market, the price has to be in between $65 and $6.65.


Niranjan Reddy Renati, 7, Sec B





Please note that this sample paper on derivatives is for your review only. In order to eliminate any of the plagiarism issues, it is highly recommended that you do not use it for you own writing purposes. In case you experience difficulties with writing a well structured and accurately composed paper on derivatives, we are here to assist you. Your cheap custom college paper on derivatives will be written from scratch, so you do not have to worry about its originality.

Order your authentic assignment from Live Paper Help and you will be amazed at how easy it is to complete a quality custom paper within the shortest time possible!



0 comments:

Post a Comment

Note: Only a member of this blog may post a comment.