Yes a Limit Order, even I have professional experience with these kind of orders.
Exam Feedback November 2019 Part 1 Exam Feedback
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I think you remember correctly, this is how I did it:
First up probability:
[e^(2/1)-0.9]/[1.05-0.9] =73.4%
So probability down is 26.6%
Up move step is 3200*1.05=3369
Down step 2970
The value of up move step is 0*73.4%=0
The value of down move is (3200-2970)*26.6%=230*26.6%=61.18
So total value is 61.18 and when you find PV using cont discounting it is 60.6
Sixcarbs
Active Member
Ok, next up, if anyone is game. I think this was question #11 in the red book.
BSM price for the following put.
Rf= 4%
Stock price = $54
Strike = $50
Time to Maturity= 9 months
Dividend= 6$, to be paid in 6 months
N(d1) and N(d2), both adjusted for dividends were given. Can't remember the exact numbers now. I believe for the put calculation we need N(-d2) and N(-d1).
This problem burned up way too much of my time. Anyone want to take a stab at this?
I think the basic formula is:
[Ke^(-q*t)]*[N(-d2)]-[S*N(-d1)]
But I also think the Present Value of the dividend needs to be inserted in there once or twice. My gut told me it should be subtracted from S. But I could not come close to any of the choices.
BSM price for the following put.
Rf= 4%
Stock price = $54
Strike = $50
Time to Maturity= 9 months
Dividend= 6$, to be paid in 6 months
N(d1) and N(d2), both adjusted for dividends were given. Can't remember the exact numbers now. I believe for the put calculation we need N(-d2) and N(-d1).
This problem burned up way too much of my time. Anyone want to take a stab at this?
I think the basic formula is:
[Ke^(-q*t)]*[N(-d2)]-[S*N(-d1)]
But I also think the Present Value of the dividend needs to be inserted in there once or twice. My gut told me it should be subtracted from S. But I could not come close to any of the choices.
[Ke^(-Rf*t)]*[N(-d2)]-[(S-PV(Dividend))*N(-d1)]
That is what I would have done. Only the stock price is impacted by the dividend. Since the dividend is not a Yield, its PV should be substracted to the Stock price. Or you have to calculate the equivalent Yield and in this case, the formula become : [Ke^(-Rf*t)]*[N(-d2)]-[S*N(-d1)*e^(-q*t)]
1. Yes, I think my answer was either "variance is finite" or "variance is constant and finite"
2. Yes, 45000
5. I vaguely remember also selecting that option
6. I selected something around 100k, but we might have different booklets
8. On the crack spread question the spread was definitely 3-2-1, there was a table with two columns of future prices, one with December the other with February futures, I used December column for oil future price, February column for the gasoline and the other stuff
qasimshaukat
New Member
There was a question that asked for sample mean. It seamed straightforward but the trick was it was based on a SAMPLE not the POPULATION so it had to be the sum divided by N-1. Does anyone remember that?
Sample mean is an unbiased estimator for the population mean, so you divide by N and not N-1. Was the question perhaps about sample variance or sample standard deviation?
qasimshaukat
New Member
No it would be n-1 to correct its unbiased nature.
"In statistics, Bessel's correction is the use of n − 1 instead of n in the formula for the sample variance and sample standard deviation,[1] where n is the number of observations in a sample. This method corrects the bias in the estimation of the population variance. It also partially corrects the bias in the estimation of the population standard deviation."
I think it was just the mean they were looking for.
qasimshaukat
New Member
Actually it couldve been sample variance.
The same! I spent too much time on it. I did not want to give up as I told myself this is very very straightforward question. But no, I could not get the answer too. I really think there is may be an error in that question.
qasimshaukat
New Member
I think we had to calculate the pay using continuous compounding. I got the answer.
I did, but not I could not get it. Did you have the red or the blue book ? I had the blue one.
qasimshaukat
New Member
I had the blue book.
qasimshaukat
New Member
Maybe you discounted the entire amount instead of half of the amount and the other half separately? And did you divide the rate by 2? You should've had the answer.
I did:
350 * exp(-Rf*0.5) + 350 * exp(-Rf*1)
and
700 * exp(-Rf*1)
I did not divided Rf by two as it's a continuously compounding.
I dont know, may be instead of 700 I wrote 750 or something else silly...
qasimshaukat
New Member
Yeah thats correct. Weird how you didnt get the answer through this. This is exactly what I did
Funny that I also used 750 at first instead of 700, then corrected it and got the answer
ohhh so that's it. It's the stress on D day.
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ajaliasgar420
New Member
even my answer was butterfly spread since according to me the question specified trader expected limited volatility therefor strangle or straddle doesn't make sense
Same with me.. Thought the same way
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