UNIVERSIDAD ESAN

PROGRAMA MAESTRA A TIEMPO COMPLETO MBA TC47-2

ASIGNATURA: LEARNING FROM WEALTH DESTRUCTION IN FINANCIAL MARKETS

PROFESOR: Andrew N. Kleit, PhD

TITULO TRABAJO: TRABAJO INDIVIDUAL El presente trabajo ha sido realizado de acuerdo a los reglamentos de la Universidad ESAN por: INTEGRANTE:

Fanny Blas Rodriguez

Cdigo: 1010814

Surco, 12 de Julio del 2011

I. Option Portfolios:

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For the two following questions, create a table of the value of your portfolio on expiration day for the integer price of the stock in the relevant range. 1) You own (are long) a call with an exercise price of 89 and a put at 97, as the price of the stock goes from 90 to 100.
Pay off to stock 90 91 92 93 94 95 96 97 98 99 100 Pay off put at 97 7 6 5 4 3 2 1 0 0 0 0 Pay off call at 89 1 2 3 4 5 6 7 8 9 10 11 Valor de Cartera 8 8 8 8 8 8 8 8 9 10 11

2) You are short a call at 80, and long a put at 76, as the price of the stock goes from 75 to 85.
Pay off to stock 75 76 77 78 79 80 81 82 83 84 85 Pay off put at 76 1 0 0 0 0 0 0 0 0 0 0 Pay off call at 80 0 0 0 0 0 0 1 2 3 4 5 Valor de Cartera 1 0 0 0 0 0 1 2 3 4 5

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3).- Assume you are buying stock in Exxon. You buy a share of stock at 125, and a put option at 121 for 2.71. You sell a call option at 129 for 3.42. Create a table for the profits of your strategy as the price of stock in Exxon at the expiration date goes from 120 to 130 (using integer numbers for the price of Exxon stock). Costo de Cartera = 125+2.71-3.42= 124.29
COSTO PAY OFF PAY OFF PAY OFF OPCION TO TO PUT TO CALL DE STOCK AT 121 AT 129 COMPRA 120 1 0 -3.29 121 0 0 -3.29 122 0 0 -2.29 123 0 0 -1.29 124 0 0 -0.29 125 0 0 0.71 126 0 0 1.71 127 0 0 2.71 128 0 0 3.71 129 0 0 4.71 130 0 -1 4.71

STOCK PRICE 120 121 122 123 124 125 126 127 128 129 130

BERNIE COST 124.29 124.29 124.29 124.29 124.29 124.29 124.29 124.29 124.29 124.29 124.29

II. Basic Statistics 1) Santander Bank was the following return profile. Given this, what is the expected return for Santander?
Event number Return Probability Expected of return Return 0.19 0.0171 0.09 -0.0018 0.21 0.0105 0.13 0.0078 0.15 0.0225 0.23 0.0161 0.0722

1 0.09 2 -0.02 3 0.05 4 0.06 5 0.15 6 0.07 Total Expected Return

2) You have invested 40% of your portfolio in asset 1, which has a mean return of 10% and

standard deviation of 15%. The rest of your portfolio is in asset 2, which has mean return

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of 6% and standard deviation of 6%. The correlation of returns between the two assets is 0.2. Given this, what is the expected return and standard deviation of your portfolio?

Event number Asset 1 Asset 2

Invested

Mean Return

Standard Deviation 15.00% 6.00%

Expected Return 0.04 0.036 7.60% 0.2

0.40 10.00% 0.60 6.00% Total Expected Return 0.18% 7.59%

Correlacin Covariance= Standard deviation of the portafolio

3) You have invested minus 20% of your portfolio in asset 1, which has a mean return of 5%

and standard deviation of 8%. The rest of your portfolio is in asset 2, which has mean return of 12% and standard deviation of 10%. The correlation of returns between the two assets is 0.8. Given this, what is the expected return and standard deviation of your portfolio?

Event number Asset 1 Asset 2

Return

Probability Standard of return Deviation 8.00% 10.00%

Expected Return -0.01 0.144 0.134 0.8

-0.20 5.00% 1.20 12.00% Total Expected Return 0.64% 10.76%

Correlacin Covariance= Variance of Portafolio Standard deviation of the portafolio

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III.

Put-Call Parity

1) A stock sells for 70. The put on this stock sells for 6.04, with an expiration date six months in the future, and a strike price of 75. The interest rate is 4%. Given this, what does the call option at 75, expiring in six months sell for? Making Money: Stock = Call - Put + exp
(-r*t)

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70 = call - 6.04+ exp(-0.04*(180/360))* 75 Call= 2.52 2) A put on a stock that expires in 4 months with a strike price of 60 when the interest rate is 2% sells for 1.31. The call on the stock with the same strike price and expiration dates sells for 5.11. What is the price of the stock? Making Money: Stock = Call- Put + exp
(-r*t)

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Stock = 5.1 1.31+ exp(-0.02*(120/360))* 60 Stock = 63.39

IV.

Nick Leeson and Barings Bank

1) BP stock sells for 100. You are a dealer, and have sold 100 call options with a strike of

105, due in one year. The interest rate is 4%/year, and the standard deviation of BP stock is 30%/year. The gamma on the call options you sold is 0.0132. If there were call options at 130 with the same expiration date, the gamma of these call options would be 0.0112. A: What is the delta on the call options at 105 and 130?

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D = [ ln (100/ 100.88289) / ( 0.3*1)] + 0.5* 0.3*1 D=0.12 Delta en 105 d= 0.12 Deltaq en 130 d= -0.5912

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