Recent content by CarlosB

Hi David. A question from reading reading 40 on P2.T5, page 42. The table regarding Model 2; Simulation, the annual drift is converted into a monthly drift by dividing by 12. However, the annual volatility is not converted into monthly volatility. Page 43 is saying that the annual volatility...

Thanks for the help! :)

Hi Shakti, Thanks for the reply, but the the issue is that the answer from the notes has: futures standard deviation / spot standard deviation (0.90 / 0.60) and not "spot standard deviation/ futures standard deviation" (0.6/0.9). If I do it like the latter, I will have 0.9 and not 0.75. Could...

Hi, regarding this question: 4. A wheat farmer hedged her future sale of 100,000 bushels of wheat by selling forward 10 contracts (each for 5,000 bushels). The standard deviation of monthly changes in the spot and futures price of wheat is, respectively, $0.60 and $0.90. What was her...

Hi, for this question: 21.5b. If the actual volatility exhibits “mean reversion in returns,” (Linda Allen’s phrase) how does our calculated daily volatility compare to the actual? Could please someone explain why or better: 21.5b. The square root rule overstates when there is mean reversion...