Illustrates an example of Arbitrage
Illustrates an example of Arbitrage?
Expert
An at-the-money European call option along with a strike of $100 and an expiration of six months is worth $8. A European put with identical strike and expiration is worth $6. There are no dividends upon the stock and a six-month zero-coupon bond along with a principal of $100 is worth $97.
Buy the call and a bond and also sell the put and the stock, that will bring in $ − 8 − 97 + 6 + 100 = $1. At expiration that portfolio will be worthless in spite of the final price of the stock. You will make a profit of $1 with no risk. It is arbitrage. It is an illustration of the violation of put–call parity.
Where is Performance measures used?
Why a different type of mathematics in Quantitative Finance is important?
What are a bank's primary reserves? When the Fed sets reserve requirements, what is its primary goal?
Why is volatility annualized standard deviation of return?
Give an example of Model-independent hedging.
Explain the difference between simple and complicated formula of value at risk.
What is trustworthy collateral from the lender's perspective? Explain whether accounts receivable and inventory are trustworthy collateral.
What factors does Standard and Poor’s analyze in finding out the credit rating it assigns a sovereign government?In rating a sovereign government, S&P’s analysis centers on an assessment of the degree of political risk and econom
Explain the formula of hedging contract.
A corporation enters in a five-year interest rate swap along with a swap bank wherein it agrees to pay the swap bank a fixed-rate of 9.75 percent annually on a notional amount of DM15,000,000 and attain LIBOR - ½ percent. As of the second reset date,
18,76,764
1958878 Asked
3,689
Active Tutors
1432903
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!