Explain the formula of hedging contract
Explain the formula of hedging contract.
Expert
For illustration, if you want to utilize some out-of-the-money puts to make it worst case not so bad, after that you could optimize by choosing λ therefore the worst case of
F(δS) + λF∗(δS) -|λ|C
shows an acceptable level of downside risk. Where F∗(·)is the 'formula' for the change into value of the hedging contract, there C is the 'cost' related with each hedging contract and λ is the quantity of the contract that is to be determined. Practically there would be many more hedging contracts, not essentially just an out-of-the-money put, therefore you would sum over all of them and then optimize.
Determine the efficiency of Numerical integration?
Company A is a AAA-rated firm wanting to issue five-year FRNs. It determines that it can issue FRNs at six-month LIBOR + 1/8 percent or at the six-month Treasury-bill rate + ½ percent. Specified its asset structure, LIBOR is the preferred index. Comp
Illustrates Black–Scholes Equation with an example?
Describe difference between the retail or client market and the wholesale or interbank market for foreign exchange?The market for foreign exchange can be distinguished as two-tier market. One tier is the wholesale or interbank market and the ot
How does AR (accounts receivable) factoring work? What are the risks and benefits to the two parties involved?
What are a callable bond and a putable bond? How can each of these bonds affect their market interest rates?
Illustrates an example of Value at Risk Used?
Who explained SABR model?
Normal 0 false false
Who illustrated short-term interest rate through a stochastic differential equation?
18,76,764
1933207 Asked
3,689
Active Tutors
1429651
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!