Question

Q1: Normal distribution Stock price today at 100. Stdev is 20: a. How much should a...

Q1: Normal distribution

Stock price today at 100. Stdev is 20:

a. How much should a 110 BINARY CALL be priced today?

b. How much should a $110 binary PUT be priced today?

Q2: Value at Risk (VaR)

A VaR is the loss a portfolio is expected to lose at a certain frequency. For example a 1% VaR is expected to happen at 1% frequency, or once every 100 time periods.

A strategy you developed is expected to generate 10 bps of mean return with 100 bps of stdev for return at daily frequency.

a. If you manage $100M, What is $ value for 5%, 1%, and 0.1% VaR for the strategy on a daily basis?

b. If your trading desk's 1% VaR is set at $10M by the chief risk officer of the company, how much money can you deploy for your strategy?

Math   Statistics-And-Probability   
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