The quantitative theory-including stochastic analysis

Assignment Help Financial Management

Reference no: EM131500425

A “quant” (i.e., an analyst trained in the quantitative theory, including stochastic analysis) working for an investment bank derived a formula for the hedge δ(t) for a contingent claim whose payoff depends only on stock value at T = 20. His supervisor inspected the formula and said that the formula seemed to be wrong because the hedge δ(t) (i.e., the number of shares to be held at time t) was negative for t = 11 (for all possible values of the stock price) and it was positive at time t = 14, for all values of the stock price. Was the supervisor justified in his suspicions? In other words, is the given information sufficient to decide that the formula is incorrect?

Reference no: EM131500425

Questions Cloud

Compute the firms price-earnings ratio : The company's share price is $12.45, and the company has 301,640 shares outstanding. Compute the firm's price-earnings ratio up to two decimal points.

What are the optimal strategies : Each of two players hides either a nickel or a dime. If the two coins match, A gets both: if they don't match, B gets both. What are the optimal strategies?

Relationships in different businesses : Develop a list of 15 associative relationships in different businesses which would be used in forecasting models and why these models would be preferred to time

What is the mean in the standard normal distribution : What are the two parameters that determine the shape of the normal distribution? What is the mean and standard deviation in the standard normal distribution?

The quantitative theory-including stochastic analysis : A “quant” (i.e., an analyst trained in the quantitative theory, including stochastic analysis)

National search from commencing : Unfortunately, there was no one waiting in the wings, and a hiring freeze prevented a national search from commencing.

When evaluating a statement of cash flows : When evaluating a statement of cash flows which of the following would be considered an example(s) of cash flow from financing activities

How do your findings generalize to larger boards : A domino piece can be placed on a 2 x 3 checkerboard in seven different ways.

What is the rate of return for the stock : What is the rate of return (r) for the stock?

User Account

All Pages