What does vega measure? What can you tell from vega value? Can the vega of a derivatives portfolio be changed by taking a position in the underlying asset? Explain your answer.

Q: Discuss the following statement: “It is possible to hedge a portfolio against any state of nature if…

A: People usually use strategies like diversification, Putting stop losses, principal protected notes…

Q: If you have long position in one asset and you want to hedge the risk of price drop in that asset…

A: With the help of a hedging strategy, the investor generally reduces or set off the risk while…

Q: How do margin trades magnify both the upside potential and the downside risk of an investment…

A: Margin trades refer to the trades in which an investor does not need to pay the full amount to take…

Q: What is an equivalent process of a money market hedge? Why?

A: Money market hedge A technique of utilizing the money market that has high liquidity, as well as…

Q: Discuss the factors giving rise to an inverted futures market for a storable versus a non-storable…

A: The inverted futures market for storable goods exists when the short-term deal costs are more…

Q: Do derivatives markets give participants the beneficial opportunity to adjust risk exposures to…

A: The derivatives are the contract between the two parties, where the value is determined by the…

Q: Can you explain what is Principles of Interest Rate Structure? and how do you do it

A: We assume the question refers to the Term Structure of Interest Rates.  Term structure describes the…

Q: How would you use preferred and convertible instruments as investments to strengthen your portfolio?

A: Preferred instruments and convertible instruments are the instruments that are issued by the company…

Q: How is the call option price impacted by varying the risk free rate of interest? How is the call…

A: 1) Call option is the contract according to which the buyer of the option has the right but not the…

Q: What is a replicating portfolio, and how is it used to find the valueof a derivative security?

A: Portfolio is a collection of investments held by an investor. Replicating portfolio is a financial…

Q: Explain in detail with an example how the change of the variables (like Stock Price, Exercise Price,…

A: Black Scholes Merton is an option valuation model. In Black Scholes Merton formula, there are five…

Q: What is the spread (i.e., difference) between futures price and spot price called? a) Convergence…

A: The futures price is an estimated price the investor expected in the future.  The spot price is a…

Q: a) If you must buy some asset in future and you just want to hedge the risk what sort of derivative…

A: Hedging is the strategy that is generally used by the investor in order to reduce or off-set the…

Q: ) What does the single index model estimate? B) What is the market risk premium? C) What does Beta…

A: A single index model simplifies security analysis by estimating the expected return on security…

Q: What is a normal market for futures? What does an inverted futures curve indicate?

A: The future refers to the legal agreement between the buyer and the seller to exchange underlying…

Q: Define the real risk-free rate (r*). What security canbe used as an estimate of r*? What is the…

A: Answer: Real risk-free return: Real risk-free return is nothing but a minimum rate of return…

Q: This is is the question related to the course "Financial Derivatives and Risk Management" Why are…

A: Option Pricing Models: There are two main models that are used to value options. They are: The…

Q: se your own word to explain the spot versus Futures prices. a. what is Backwardation b. What is…

A: Spot price is the current market price of a security at which it can be traded in the market, that…

Q: Changes in what price lead to gains and/or losses in futures contracts?

A: changes in underlying asset leads to gains and/or losses in future contracts.

Q: Explain how the futures markets can be used to reduce interest rate and input price risk.

A: A contract in which a seller & a buyer has an obligation to sell or buy an asset for a…

Q: How does one asset in the same portfolio influence the other one in the same portfolio? And what…

A: A portfolio is the collection of securities managed to get systematic returns and maximize the value…

Q: Forwards and Futures: How are forwards and futures similar? How are they different? Briefly explain…

A: A forward contract is referred to the customized contract, which is between the two parties for…

Q: How is the intrinsic value of the call option impacted as the stock price changes? How is the time…

A: 1) Intrinsic value of a call option for a trader is the current value of the option. It is the…

Q: What is the relationship between forward rates and the market’s expectation of future short rates?…

A: Forward rate implies the yield on the bond expected by investors in future. It is the calculated…

Q: "Financial Derivative and Risk Management" Why are the probabilities of stock price movements not…

A: Option prices are basically the sum of the intrinsic and time value of an option. The price…

Q: What is the Security Market Line (SML)? How isbeta related to a stock’s required rate of return?

A: Security market line (SML): It could be a line drawn on a graph that works as a graphical…

Q: What’s the difference between spot markets and futures markets?

A: Introduction: Spot market can be defined as a over the counter market which involves trading of…

Q: What are advantages of futures options over spot options?

A: Futures: The contract to buy or sell assets at predefined prices but will be paid and delivered…

Q: the difference in the manner that futures and options modify portfolio riks

A: Future contracts are those whose value is determined by the underlying assets. These contracts are…