Questions tagged [self-study]

A routine question from a textbook, course, or test used for a class or self-study. This community's policy is to "provide helpful hints" for self-study questions.

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416 views

How do we know that the instaneous rate of return on this option, $\gamma$ is negative?

I am self-studying models for financial economics and encountered the following problem: I don't see how the author can conclude that $\gamma = -0.62$. Let's rearrange the second to last equation: $$\...
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0answers
80 views

Modelling the Cost of Risk

I would like to read something about the cost of risk. Could anyone recommend some reference about how it is calculated or modelled?
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0answers
82 views

Financial theory

Ok guys, I'm studying from Danthine and Donaldson - Intermediate Financial Theory. The book itself doesn't have a lot of worked examples, and I'm lacking the basics for understanding some concepts ...
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0answers
75 views

Show that portfolio's percentage contribution to loss (PCL) equals PCR (risk)

I came across this question during self study on a quantitative book (Question 3.6 on Page 75 of Quantitative Equity Portfolio Management: Modern Techniques and Applications By Edward E. Qian, Ronald ...
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0answers
144 views

Difference between spread duration & IR duration for a fixed rate bond

I am struggling to comprehend the difference in impact between spread duration & IR for a fixed rate bond when yields move. I know that both measures would be the same for a fixed rate bond but ...
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0answers
66 views

What should I learn/know before reading Investments by Bodie Kane Marcus?

I hope this is the appropriate place to post this. If not, I would really appreciate if someone could redirect me to the right site. I've been seeing a lot of recommendations for the book, ...
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0answers
2k views

How to derive the Greek theta from Black-Scholes solution formula?

Which are the steps to compute the theta greek from the BS solution: $$c(t, x) = xN(d_+(T-t,x)) - K e ^{-r(T-t)}N(d_-(T-t,x))$$ with: $$ d_\pm (T-t, x) = \dfrac{1}{\sigma \sqrt{T-t}} \left[ \ln \...
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0answers
250 views

stochastic calculus and multidimentional itos lemma

I am considering a number of assets (N) in a portfolio. each asset follows a geometric Brownian motion process therefore the stochastic differential equation is dS(i) = S(i)μdt + S(i)σdX(i). The ...
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58 views

Risk free rate application to option pricing

We have $S_o = 50, u = 1.0606, d = 1/u, K = 54.50,$ risk free rate $r = 0.1$ per week, maturity in 9 weeks, given a binomial tree (3 steps)with the probabilities given by $q = (1+e^{r(T-t)}/u-d)$, no ...
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39 views

Optimizing Portfolio Return by Targeting Variance

I understand Markowitz and targeting returns to minimize our variance. I know this optimization problem well and its constraints. However when the reverse scenario is to be considered I get very ...
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376 views

How to calculate an option porfolio cost and payoff function?

There are call and put options on the same underlying asset, with the same expiry, $T$, and with strikes $K_c=(k_c^1, k_c^2, \ldots, k_c^m)$ and $K_p=(k_p^1, k_p^2, \ldots, k_p^m)$, $S_t$ is a price ...
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1answer
73 views

Why would a principal 'insist on a name' at the original price

A Dealing Certificate practice question What is a principal doing if he 'insists on a name' at the original price? Answer: He refuses the broker's compensation and demands that the transaction is ...
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1answer
129 views

Implicit relation between risk and reward

I want to differentiate w.r.t. $\sigma^2$ the following equation $u'(Y)\mu$ + $\frac{u''(Y)}{2}$$(\sigma^2 + \mu^2) = 0$ where we can consider $\mu$(reward) as an implicit function of $\sigma^2$(risk) ...