The value of the Australian dollar is $0.6. The Rf is 5%pa in the US and 10% pa in Aus. The market price of a Euro call option on the Aus dollar with a maturity of 1 year and a strike price of $0.59 is $0.0236. Find the price p of a Euro put option with a strike price of $0.59 and maturity 1 year.
Hi David,
I was checking if both the formulas of convexity that I know lead to the same solution. I had posted this in another topic but am still confused. Could you please help me.
There are 2 formulas for convexity that I used:
1. C = [ BV(2) + BV(1) - 2*BV(0) ] / BV(0) * (delta y)^2...
Here is the calculation:
t(t+1) * PVCF = 1.84, 4.78, 8.77, 562.62 = 578.01
denominator: B ( 1 + y )^2 .... Now B = 100.95 and taking y = 4.5% we get this = 110.24
so its: 5.24
Hi, Thanks for looking into it. But the coupons are 2.5 each, coz its a 5% semi annual bond. yielding to give 4.5% for 2 years.
And yes, the formula I initially had was incorrect. The one you gave was listed on many sites where you find sum of t(t+1) PVCF as the numerator and in the...
Hi,
So I was looking at the example in Bruce Tuckman where he explains Key Rate Shifts and as per his example we have:
A semi annual payment mortgage to be retired in 30 years at a payment of 3250 per 6 months discounted at a 5% flat rate. This gives the PV to be 100,453.13
Now he says...
Still doesnt give me 4.556
When using this formula: C = [ 1/ {B * (1 + y)^2 } ] * Sum of [ { t^2 + t } * PVCF ] what should be the value of y when the yield is semi annual? So a 4.5% semi annual rate would come out to be 1.045 squared or should be 1.0225 to the power 4? Either way...
Hi,
There are 2 formulas for convexity that I know:
1. C = [ BV(2) + BV(1) - 2*BV(0) ] / BV(0) * (delta y)^2
2. C = Summation of ( year number)^2 * Present Value of Cash Flow / Current Bond Value
Now I did a question using both methods and got 2 different answers.
Here is the question...
Hi David,
Thanks for the quick replies.
Soln 1. tells me that I neednt be bothered about how to calc. k values as these are set values - thanks for the info.
Soln 2. took me back to high school math. I did the math and got the numbers! ( Umm.. isn't the number of trials supposed to be...
Q1. How are they mathematically getting the values for k under the Basel penalty zone to go from 3 to 4 for a 250 day 99% CI when the number of exceptions goes from 5 to 10. Or is it something that has been set by Basel?
Q2. There is an example in Jorion where they have found that when p =...
Hi Aditya. Thanks for the reply.
So according to you the formula for GEV frechet limits down to e^ (-z) as xi -> 0. I forgot limits, but supposing that is correct, then how does that make the Gumbel equation = e^ ( - e ^ ( -z)) ? (especially since there is only 1 exponential in the...
question 3: "Gev requires the estimation of one more parameter than POT" - which parameter are they talking about?
(see if they are talking about the general pot formula - that requires only u (while gev requires - xi, u, sigma), while the var estimate using pot requires 6 parameters - u...
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