State the term dispersion trading
State the term dispersion trading?
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Dispersion trading is a strategy including the selling of options on an index against buying a basket of options upon individual stocks. This strategy is a play upon the behaviour of correlations throughout normal markets and throughout large market moves. When the individual assets returns are extensively dispersed then there may be little movement into the index, however a large movement in the individual assets. It would result in a large payoff on the individual asset options other than little to payback upon the short index option.
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Give an example of dynamic hedging.
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?
Where is Crash Metrics Used?
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Explain the formula of hedging contract.
What happens if the correlation coefficient for two variables is -1 or 0 or +1?
What are the advantages of “collecting early” and how do companies try to do this?
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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