What is Meant by ‘Complete’ and ‘Incomplete’ Markets
What is Meant by ‘Complete’ and ‘Incomplete’ Markets?
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A complete market is one wherein a derivative product can be artificially made by more fundamental instruments, like cash and the underlying asset. It usually includes dynamically rebalancing a portfolio of the easiest instruments, according to several formula or algorithm, to replicate too complicated product, the derivative. Of course, an incomplete market is one in that you can’t replicate the option along with simpler instruments.
Explain the common pattern of cash flows from a bond with a positive coupon rate.
Suppose today's settlement price on a CME DM futures contract is $0.6080/DM. You have a short position in one contract. Your margin account presently has a balance of $1,700. The next three days' settlement prices are $0.6066, $0.6073, & $0.5989. Compu
Stock price is $98; and European call option struck at $100 along with an expiration of nine months has a value of $9.07. There nine-month, compounded continuously, interest rate is 4.5%. So find out the value of the put option with the same strike and expirat
How can we use real probabilities for pricing derivatives?
How are brokers compensated? What is the role of a broker in security transactions?
How can the FX futures market be utilized for price discovery?To extent that FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates whether one currency will appreciate or depreciate versus another. Si
Define the stochastic differential equation with an expression?
How is the implied volatility calculated?
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How does the deposit-loan rate spread out into the Eurodollar market compare to the deposit-loan rate spread out in the domestic U.S. banking system? Why?The deposit-loan spread out in the Eurodollar market is narrower than in the domestic
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