efficient variance reduction, Financial Management

Assignment Help:

Assume we are in the midst of the financial crisis in October 2008. Your firm is considering the purchase of a 10 year put option on the S&P 500 Index. You are analyzing the pricing of this option and you would like to incorporate dissimilar deterministic assumptions for the volatility, the interest rate and the dividend yield for each future year. Let us use the following notation:

1569_44.png

 

A) Describe how you would use market data to estimate the future interest rates, future Index volatilities and dividend yields. Describe how to use Monte Carlo simulation to estimate the price of this option. Assume the initial index level is S0 and the strike
price is  K. Assume you are writing the instructions for a programmer  who wil implement the program.

B) Explain in detail an efficient variance reduction technique to improve the efficiency of the algorithm.  
 
C) Explain carefully how you could numerically estimate the delta of this put option.

 


Related Discussions:- efficient variance reduction

Calculate, #questiBabar Corporation''s present capital structure, which is ...

#questiBabar Corporation''s present capital structure, which is also its target capital structure I, is 40% debt and 60% common equity. Next year''s net income is projected to be R

How to measure the firm risk of a capital budgeting project, Explain how to...

Explain how to measure the firm risk of a capital budgeting project. The firm risk of a capital budgeting project measures the force of adding a new project to the existing pro

Sources of long term financing , you are checking a financial analyst''s re...

you are checking a financial analyst''s recommendation. the analyst projects a company''s stock price to be P72 per share in 3 years. the most recent annual dividend was P1.68 per

Residual income, Residual Income This is used for external reporting pu...

Residual Income This is used for external reporting purposes. This term refers to the net income which is available for distribution to the firm's common stock holders. In mana

Explain the terminologies of finance, Explain the terminologies of finance ...

Explain the terminologies of finance Raise and efficiently utilise funds which are your disposal (or at least try to).That a business organisation also needs to do the same can

Treasury yield curve, Treasury securities are government bonds issued...

Treasury securities are government bonds issued by the US Treasury Department. These are issued through the Bureau of the Public Debt. They are debt-financing ins

Define double-entry bookkeeping, Q. Define Double-Entry Bookkeeping? Do...

Q. Define Double-Entry Bookkeeping? Double-Entry Bookkeeping - Method of recording financial transactions in that every transaction is entered in two or more accounts and inclu

Increased common stock cash dividend signal to stock holder, Do you believe...

Do you believe an increased common stock cash dividend can send a signal to the common stockholders?  If so, what signal might it send? An enhance in cash dividends is often se

Pension fund system - uk, The UK Pension Fund System The UK Pension sys...

The UK Pension Fund System The UK Pension system is a three pillar pension system. A flat-rate first-tier pension is provided by the state and is known as the Basic State Pensi

Explain the internalization theory of fdi, Normal 0 false fal...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd