hw4.

xls

Summary of answers to Homework 4

Question 1.
part (a)

Mean
Std error of mean
Std dev
10th
50th
90th
Prob exceed $1M
Std err of prob

Strategy 1 Strategy 2
Strategy 3
Strategy 4
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.0000%
0.0000%
0.0000%
0.0000%
0.0000%
0.0000%
0.0000%
0.0000%

part (b) Explanation of your proposed strategy 4

part (c)
Strategy 2
Probability double before halve
0.0000%
Std error
0.0000%

Strategy 3
0.0000%
0.0000%

Question 2.

Index
0.000
0.000
0.000

Short
ETF-1
0.000
0.000
0.000

Ultrashort
ETF-2
0.000
0.000
0.000

Triple short
ETF-3
0.000
0.000
0.000

Simulation price estimate

Index
0.000

Short
ETF-1
0.000

Ultrashort
ETF-2
0.000

Triple short
ETF-3
0.000

Closed-Form Price

Index
0.000

Short
ETF-1
0.000

Ultrashort
ETF-2
0.000

Triple short
ETF-3
0.000

parts (a), (b)

Simulation price estimate
Lower confidence limit
Upper confidence limit

part (c)

Median value

part (d)

Question 1.
S&P500 return
Volatility
Dividend rate
Interest rate

Target

Saving for retirement

6.00%
20.00%
0.00%
2.50%

1,000,000

Question 2.
Oil index
Volatility
Interest rate
Delta(t)
Maturity

A)
100
25.0%
2.0%
0.0040
0.500

Day
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
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24
25
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27
28
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31
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35
36
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45
46
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48
49
50

51
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53
54
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57
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66
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70
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76
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81
82
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84
85
86
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88
89
90
91
92
93
94
95
96
97
98
99
100
101
102

103
104
105
106
107
108
109
110
111
112
113
114
115
116
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118
119
120
121
122
123
124
125
126

Oil Index Price

100.0000
76.1471
76.4565
66.9888
52.8771
62.9314
58.1632
38.7411
36.0175
43.0066
38.8034
42.4240
37.7610
41.3861
42.5871
21.8299
15.0057
16.7928
17.4516
15.0571
11.5894
8.3617
7.1141
5.1202
5.0665
5.4044
3.9414
3.6904
3.3014
2.7373
2.2222
2.1801
1.8655
1.5478
1.4522
1.1203
1.0688
0.9065
1.0604
0.8224
0.6903
0.6378
0.5567
0.4668
0.3522
0.3533
0.3361
0.3142
0.2908
0.3110
0.3218

Time
0.5
0.496032
0.492063
0.488095
0.484127
0.480159
0.47619
0.472222
0.468254
0.464286
0.460317
0.456349
0.452381
0.448413
0.444444
0.440476
0.436508
0.43254
0.428571
0.424603
0.420635
0.416667
0.412698
0.40873
0.404762
0.400794
0.396825
0.392857
0.388889
0.384921
0.380952
0.376984
0.373016
0.369048
0.365079
0.361111
0.357143
0.353175
0.349206
0.345238
0.34127
0.337302
0.333333
0.329365
0.325397
0.321429
0.31746
0.313492
0.309524
0.305556
0.301587

Factor

Returns

Payoff Factor

1
-0.23853
0.004064
-0.12383
-0.21066
0.190145
-0.07577
-0.33393
-0.0703
0.194047
-0.09774
0.093307
-0.10991
0.096002
0.02902
-0.48741
-0.31261
0.119096
0.039229
-0.13721
-0.2303
-0.27851
-0.1492
-0.28027
-0.01049
0.066692
-0.27071
-0.06368
-0.10542
-0.17086
-0.18818
-0.01895
-0.14429
-0.17029
-0.0618
-0.22851
-0.04599
-0.15188
0.169758
-0.22445
-0.1606
-0.07608
-0.12714
-0.1615
-0.24545
0.002986
-0.04856
-0.0651
-0.07454
0.069367
0.034887

1.477058706
1.46505283
1.827892933
2.598013727
1.610016686
1.853989383
3.092176274
3.526941074
2.158156978
2.580012266
2.09854804
2.559869417
2.068366051
1.948319588
3.847563018
6.253121826
4.763674214
4.389924076
5.594612785
8.171514914
12.72315902
16.51982211
25.77982652
26.32045118
22.8097504
35.15944116
39.63722256
47.99460601
64.39522774
88.63077717
91.98937971
118.5359952
158.9058483
178.5465412
260.147494
284.0755415
370.3671514
244.6218434
354.4301861
468.2707807
539.5239882
676.7111524
895.2833813
1334.780561
1326.80892
1455.658674
1645.184044
1890.434909
1628.166194
1514.562533

Payoff
100
147.7059
111.5595
139.7544
174.0378
85.13295
116.6741
179.8509
136.6375
77.73151
110.9576
81.43075
108.5999
78.10353
80.63334
163.8566
136.5051
71.4823
73.71925
97.63495
123.0389
147.4536
138.1332
183.3997
134.7665
115.5663
190.0166
156.2257
177.1197
212.5914
242.6079
204.4179
258.4186
296.4416
276.3628
377.7837
318.2623
395.8558
221.7463
375.8268
385.0939
372.4355
431.596
498.4029
623.0675
467.3269
514.2413
552.9743
594.0426
473.4936
471.0093

0.2891
0.2684
0.2801
0.2660
0.2219
0.1957
0.1568
0.1738
0.1723
0.1555
0.1576
0.1487
0.1235
0.1107
0.1041
0.1078
0.1068
0.0969
0.0947
0.0903
0.0748
0.0628
0.0617
0.0578
0.0554
0.0677
0.0743
0.0774
0.0818
0.0883
0.0686
0.0672
0.0595
0.0611
0.0616
0.0582
0.0610
0.0553
0.0521
0.0478
0.0422
0.0439
0.0446
0.0489
0.0490
0.0483
0.0507
0.0484
0.0450
0.0441
0.0452
0.0433

0.297619
0.293651
0.289683
0.285714
0.281746
0.277778
0.27381
0.269841
0.265873
0.261905
0.257937
0.253968
0.25
0.246032
0.242063
0.238095
0.234127
0.230159
0.22619
0.222222
0.218254
0.214286
0.210317
0.206349
0.202381
0.198413
0.194444
0.190476
0.186508
0.18254
0.178571
0.174603
0.170635
0.166667
0.162698
0.15873
0.154762
0.150794
0.146825
0.142857
0.138889
0.134921
0.130952
0.126984
0.123016
0.119048
0.115079
0.111111
0.107143
0.103175
0.099206
0.095238

-0.10173
-0.07166
0.043574
-0.05025
-0.1659
-0.11795
-0.19862
0.108201
-0.00865
-0.09729
0.013174
-0.0563
-0.16919
-0.10425
-0.05969
0.036259
-0.00946
-0.09323
-0.02238
-0.04606
-0.17159
-0.16027
-0.01789
-0.06366
-0.04101
0.221098
0.097509
0.041573
0.057307
0.079411
-0.2231
-0.02017
-0.11426
0.026997
0.007158
-0.05489
0.0484
-0.09283
-0.05932
-0.08237
-0.11577
0.038492
0.016218
0.09704
0.001347
-0.01345
0.050442
-0.04572
-0.07166
-0.01862
0.024027
-0.04266

1822.703765
2083.940804
1902.330165
2093.503907
2788.149261
3445.867937
4814.719733
3772.807726
3838.113659
4584.945931
4464.143492
4966.794704
6647.449761
8033.497332
8992.60409
8340.485701
8498.336315
10083.00066
10534.28431
11504.6322
15452.90445
20406.21516
21136.22215
23827.24411
25781.76108
14381.14855
11576.56709
10614.02061
9397.51449
7904.979329
11432.14562
11893.3843
14611.23864
13822.30796
13624.42046
15120.00594
13656.37468
16191.7607
18112.84206
21096.60185
25981.37527
23981.23754
23203.38789
18700.05732
18649.68728
19151.24961
17219.21389
18793.57062
21487.01107
22287.34698
21216.33096
23026.4205

586.6125
602.4616
510.5473
586.3367
741.6515
764.5362
942.2456
591.6912
667.0627
789.9652
694.3195
782.6749
988.5412
992.5367
995.2042
867.935
916.4271
1077.022
1020.317
1089.365
1395.833
1526.963
1328.106
1470.417
1489.75
796.9049
783.3275
788.2275
726.8995
646.4918
1009.199
815.6823
981.8657
822.7205
832.8353
930.8737
794.6179
987.7435
1002.366
1098.229
1241.115
1012.945
1017.815
833.58
912.0077
937.7964
831.8504
953.7028
1040.538
1001.954
936.0421
1040.311

0.0410
0.0424
0.0359
0.0372
0.0348
0.0402
0.0380
0.0381
0.0362
0.0355
0.0359
0.0346
0.0347
0.0331
0.0299
0.0317
0.0320
0.0303
0.0290
0.0285
0.0293
0.0298
0.0291
0.0291

0.09127
0.087302
0.083333
0.079365
0.075397
0.071429
0.06746
0.063492
0.059524
0.055556
0.051587
0.047619
0.043651
0.039683
0.035714
0.031746
0.027778
0.02381
0.019841
0.015873
0.011905
0.007937
0.003968
1.33E-15

-0.05208
0.033622
-0.15311
0.037267
-0.06634
0.156106
-0.05351
0.001863
-0.04901
-0.02017
0.010044
-0.03478
0.001364
-0.04488
-0.09576
0.058965
0.007995
-0.05022
-0.04592
-0.01435
0.025238
0.019583
-0.024
-5.5E-09

25424.67701
23715.00967
30976.93986
28668.10558
32471.99129
22333.81467
24723.80206
24631.6799
27046.10529
28137.00389
27571.80612
29489.8121
29409.34116
32049.26409
38187.49556
33684.07568
33145.45795
36474.88184
39824.95856
40967.78309
38899.90265
37376.38456
39170.42017
39170.4206

1099.662
972.3007
1312.737
1028.883
1208.833
776.2606
993.4768
936.8162
1030.56
1019.582
978.9522
1057.568
1017.998
1110.893
1264.247
1008.366
1050.749
1165.54
1208.675
1186.261
1110.222
1093.662
1168.602
1140.556