Explain the second way of calibration
Explain the second way of calibration if we can’t measure that parameter.
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Another method is to assume, efficiently, that there is information in the market prices of traded instruments. Here in example we ask what volatility we should put in a formula to find the ‘correct’ price of $19. We then utilize that number to price other instruments. There In that case we have calibrated our model to an instantaneous snapshot of the market on one moment in time, quite than to any information by the past.
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What are the difference between Capital Asset Pricing Model and Markowitz’s Modern Portfolio Theory?
In May 1995, Japan Life Insurance Company invested $10,000,000 in pure-discount U.S. bonds while the exchange rate was 80 yen per dollar. The company liquidated the investment one year afterwards for $10,650,000. The exchange rate turned out 110 yen per dollar
Explain linear or non-linear in Monte Carlo method.
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