Please send first half of questions when completed and second half when complete.

Option

Suppose you are short 21 futures contracts of Silver (contract size = 5000 oz.) The futures price is 21.05 per ounce. The initial margin is: $9,900 per contract, the maintenance margin is $9,000 per contract.

a) At what price level would you receive a margin call?

b) Calculate the price level that would allow you to withdraw $20,000 from your margin account?

You currently hold 25,000 shares of XYZ stock. The stock is currently trading at $68.00 per share.

You are interested in hedging against short-term movements in the market and decide to use E-Mini S&P 500 futures to hedge your exposure. The Index is currently at 4025. Contract size = $50 times the index. Beta of the Stock is 1.18. Calculate how many E-mini S&P 500 futures contracts are needed to hedge the portfolio against downside price risk. Indicate if you need to go long or short to hedge your exposure.

a) What is the notional value of your position when…

E-Mini S&P 500 Futures are at: 4,395.00 and you short: 33 contracts

b) What is your Profit/Loss if the e-Mini S&P futures go to: 4,311.00

Suppose you bought ABC stock at $50 and sold a $54 Call expiring in December for $1. Name the strategy, calculate break-even, max. profit, max. loss and describe the rationale of using the strategy. Draw a graph to help illustrate your answer. Will this strategy be useful to manage risk?

You are given the following data on a European call option and put option for a stock.

Please send first half of questions when completed and second half when complete. 1

Are there any arbitrage opportunities? Carefully explain how you would take advantage of arbitrage opportunities. How much, if any, arbitrage profit can you achieve?

Companies X and Y have been offered the following rates per annum on a $50 million 5-year loan:

Please send first half of questions when completed and second half when complete. 2

Company X requires a floating-rate loan; company Y requires a fixed-rate loan. Design a swap that will net a bank, acting as intermediary, 0.10% per annum and will be equally attractive to X and Y. Draw a graph for your answer.

The spot exchange rate for US and Japan is quoted as 105.33 (¥ per $). The US continuously compounded risk-free rate is 1.00%. Japan's continuously compounded risk-free rate is 0.15%.

Calculate the 5-month forward exchange rate.

The following data are given for a Stock Option:

Please send first half of questions when completed and second half when complete. 5

a) What is the new call premium if one day passes by and no other changes have occurred?

b) What is the new call premium if volatility decreased from 33% to 32% and there are no other changes?

Q10

Using a 1-step binomial tree, calculate the premium of a non-dividend paying European Call. Each time step is indicated by the value of T above. Use continuously compounded rates and show all your work.

Q11

As we learned in class, a short strangle is an option strategy with undefined risk.

Identify at least one way of converting this undefined risk to a defined risk strategy. Please explain the pros and cons of your choice

Q12

What is "delta" conceptually and mathematically? Why would we need delta to establish a risk-neutral position? Provide a detailed explanation to get full credit.

Q13

A U.S. company has accounts receivables in 4 countries: Switzerland (CHF 50M), England (£50M), Germany (€50M) and Italy (€50M). Given the ongoing Covid-19 pandemic and potential repercussions in Europe, where do you see the potential risks going forward? What instruments would you use and how much of the risk would you hedge and in which currency? Give a detailed explanation!