Explain exotic or over-the-counter contracts
Explain exotic or over-the-counter (OTC) contracts.
Expert
These are not traded actively; they may be unique to you and your counterparty. These instruments need to be marked to model. And this clearly raises the question of that model to use. Generally in this context the ‘model’ implies the volatility, whether in FX or fixed income and equity markets.
How can you utilize the traded prices?
What are the Greeks?
Example of Girsanov’s Theorem.
How is Sharpe ratio slope of the risk-free investment?
A stock whose value is now $44.75 is growing on average by 15 percent per annum. Its volatility is 22 percent. The interest rate is 4 percent. You need to value a call option along with a strike of $45, expiring in two months’ time. So, what can you do?
Which numerical method should we use?
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Should you place all your money in a stock which has low risk but also low expected return, or one along with high expected return but that is far riskier or maybe divide your money among the two?
Assume you are a euro-based investor who just sold Microsoft shares which you had bought six months ago. You had invested 10,000 euros to purchase Microsoft shares for $120 per share; the exchange rate was $1.15 per euro. You sold the stock for $135 per share
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