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Hi David, This is my crude approximation: I solved for u = exp(.2) = 1.2214, d = 1/u = 0.8187, a = exp(.04) = 1.0408. p = (1.0408 - 0.8187)/(1.2214 - 0.8187) = 0.5515, 1- p = 0.4485 Value of portfolio for up jump = 12.21Δ - 2.21 Value of portfolio for down jump = 8.19Δ Equating 12.21Δ - 2.21 =...

Thanks, David - appreciate it! Jayanthi

Hi David, The very same situation for the above referenced : Stock price = $10, Strike Price = $10, volatility = 20%, Risk-free rate = 4%, T - 1 year. 12.03(e) What is the delta of a put option? My answer turns out to be -0.33 using a no-arbitrage one-step Binomial Tree, while Hull's answer...

Hi David, As referenced above: Given the following data: Stock price = $10, Strike price = $10, volatility = 20%, riskfree rate = 4%, and Term = 1.0 year #12.03 (d) What is the delta of a call option? Using the Black Scholes Merton model, Hull gets 0.6179 as the value of the call option...

Hi David, In your answer to problem 1.4 as referenced above, there seems to be an extra node in the downward movement in the Binomial tree. Just thought I would bring it to your attention. Thanks! Jayanthi

Yes, it is certainly not profound!

Hi David, As referenced above, and as also mentioned in Hull: When using a binomial tree to represent the movement in the price of the underlying, the parameters u and d are chosen so as to match the volatility of the stock price. It turns out that the volatility is the same in both the...

Hi David, Sorry about my first comment above - it so happens that Page 8 of the Study Notes talks about valuing American call or put options as a header. However, the problem stated above is about a European put option, which threw me off:rolleyes:. I also notice that you have used inputs from...

Hi David, Just needed to clarify that the volatility parameter in the following is extraneous to the problem: Below is the two-step binomial for a European call option. Assumptions are: Current asset price = $20, Strike = $21, Time = six months, Volatility = 19%, Riskless rate = 12%, and...

Hi David, Wanted to bring to your attention some errors in the referenced above. Hull's Example 12.8 Two-step European put option, with up and down simply given as inputs. In this way, volatility does not inform up and down and, consequently, this model does not implicitly assume lognormal...

I can see that I defaulted on the basic concept of ES! Thanks! Jayanthi

Sorry - figured out my mistake!! Thanks Jayanthi

Hi David, In the following as referenced above, I don't know what I am doing wrong. Please help! What is the 95% ES of a two-bond portfolio? (PD = 2% each and independent) The expected shortfall (ES) is given by: (0 defaults * 1.04% + 1 default * 3.92% + 2 defaults * .04%)/5% = 0.80 i.e. the...

Hi @RiskGuy, Also, for the second property, the right formula is: Var xy = Var x + Var y + 2 Cov(xy) where Cov(xy) = Corr(xy)*sigma x *sigma y Thanks! Jayanthi

Thanks David, appreciate it! Best Jayanthi

Hi David, In the above referenced, what is the generalized formula for calculating hybrid weights? Could you please clarify! Does one need to memorize this formula for the exam? Thanks Jayanthi

Hi @Basti, From my experience, I feel it would be wise to get the new GARP books. Please ask David to confirm! Thanks Jayanthi

Thanks David for the 'star'! Jayanthi

Dear @Basti, I was originally scheduled to sit for the November 2014 FRM Part I Exam. I am now planning to sit for it in November 2015. From one year to the other, the changes in the readings are phenomenal (except for the Quantitative section). I would advise you to buy the GARP 2105 FRM...

Hi Julien, I am not sure that I understand your question.....As far as the FRM Books go, GARP sells them as a package. And as far as BT goes, it also sells its study material et al as a package. I have bought both the GARP FRM I package and the BT FRM I package. You can go to the Home page of...