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Q17. After discussing the concept of a delta-neutral portfolio, Washington determines that he needs to further explain the concept of delta. Washington draws the payoff diagram for an option as a function of the underlying stock price. Using this diagram, how is delta interpreted? Delta is the:
A) curvature of the option price graph.
B) level in the option price diagram.
C) slope in the option price diagram.
Q18. Washington considers a put option that has a delta of ?0.65. If the price of the underlying asset decreases by $6, then which of the following is the best estimate of the change in option price?
A) ?$6.50.
B) +$3.90.
C) ?$3.90.
Q19. Washington is trying to determine the value of a call option. When the slope of the at expiration curve is close to zero, the call option is:
A) out-of-the-money.
B) in-the-money.
C) at-the-money.
Q20. BIC owns 51,750 shares of Smith & Oates. The shares are currently priced at $69. A call option on Smith & Oates with a strike price of $70 is selling at $3.50, and has a delta of 0.69 What is the number of call options necessary to create a delta-neutral hedge?
A) 75,000.
B) 14,785.
C) 0.
Q21. Which of the following statements regarding the goal of a delta-neutral portfolio is most accurate? One example of a delta-neutral portfolio is to combine a:
A) long position in a stock with a short position in call options so that the value of the portfolio does not change with changes in the value of the stock.
B) long position in a stock with a short position in a call option so that the value of the portfolio changes with changes in the value of the stock.
C) long position in a stock with a long position in call options so that the value of the portfolio does not change with changes in the value of the stock.
Q22. In order to form a dynamic hedge using stock and calls with a delta of 0.2, an investor could buy 10,000 shares of stock and:
A) write 2,000 calls.
B) write 50,000 calls.
C) buy 50,000 calls.
Q23. The delta of an option is equal to the:
A)dollar change in the stock price divided by the dollar change in the option price.
B)percentage change in option price divided by the percentage change in the asset price.
C)dollar change in the option price divided by the dollar change in the stock price.
Q24. An instantaneously riskless hedged portfolio has a delta of:
A) anything, gamma determines the instantaneous risk of a hedge portfolio.
B) 0.
C) 1.
Q25. John Williamson is a recently retired executive from Reston Industries. Over the years he has accumulated $10 million worth of Reston stock and another $2 million in a cash savings account. He hires Frank Potter, CFA, a financial adviser from Star Financial, LLC, to help him with his investment strategies. Potter has a number of interesting investment strategies for Williamson's portfolio. Many of the strategies include the use of various equity derivatives.
Potter's first recommendation includes the use of a total return equity swap. Potter outlines the characteristics of the swap in Table 1. In addition to the equity swap, Potter explains to Williamson that there are numerous options available for him to obtain almost any risk return profile he might need. Potter suggest that Williamson consider options on both Reston stock and the S& 500. Potter collects the information needed to evaluate options for each security. These results are presented in Table 2.
Table 1: Specification of Equity Swap
|
Term |
3 years |
|
Notional principal |
$10 million |
|
Settlement frequency |
Annual, commencing at end of year 1 |
|
Fairfax pays to broker |
Total return on Reston Industries stock |
|
Broker pays to Fairfax |
Total return on S& 500 Stock Index |
Table 2: Option Characteristics
|
|
Reston |
S& 500 |
|
Stock price |
$50.00 |
$1,400.00 |
|
Strike price |
$50.00 |
$1,400.00 |
|
Interest rate |
6.00% |
6.00% |
|
Dividend yield |
0.00% |
0.00% |
|
Time to expiration (years) |
0.5 |
0.5 |
|
Volatility |
40.00% |
17.00% |
|
Beta Coefficient |
1.23 |
1 |
|
Correlation |
0.4 |
|
Table 3: Regular and Exotic Options (Option Values)
|
|
Reston |
S& 500 |
|
European call |
$6.31 |
$6.31 |
|
European put |
$4.83 |
$4.83 |
|
American call |
$6.28 |
$6.28 |
|
American put |
$4.96 |
$4.96 |
Table 4: Reston Stock Option Sensitivities
|
|
Delta |
|
European call |
0.5977 |
|
European put |
-0.4023 |
|
American call |
0.5973 |
|
American put |
-0.4258 |
Table 5: S& 500 Option Sensitivities
|
|
Delta |
|
European call |
0.622 |
|
European put |
-0.378 |
|
American call |
0.621 |
|
American put |
-0.441 |
Williamson would like to consider neutralizing his Reston equity position from changes in the stock price of Reston. Using the information in Tables 3 and 4 how many standard Reston European options would have to be bought/sold in order to create a delta neutral portfolio?
A) Sell 497,141 put options.
B) Buy 497,141 put options.
C) Sell 370,300 call options. | 
发表于 2009-3-28 16:45
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