Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Q. Long and short dated volatility?
1. If an investor purchase long-dated volatility as well as sells short-dated volatility then the investor is expecting a decrease in the short dated volatility and an increase in the long dated volatility.
Obviously there is no guarantee that these expectations will be realized. If short run volatility goes up or else and long run volatility decreases the pay off from the position would definitely be negative.
This is equal to an investor constructing a short straddle position by using knock-out options. Long straddle may be constructed by utilizing options which have break-out clause to put a limit to unrestricted risk of loss that arises from the short (straddle) position in the short run.
If short dated volatility turns out to be high an additional premium is able to be triggered on the options which are used for the long straddle.
This added payoff from the long volatility position off sets the losses from the short volatility position.
3. The applicable payoff function will shift upwards by the amount of the additional payoff.
4. If the added premium is a fixed amount this may cut potential losses yet it mayn't be sufficient enough. Nevertheless considering that the short position is taken for one month this risk mayn't be a very big risk.
5. It is understandable from the text that volatility positions taken by using the straddles are not pure volatility positions.
Why are trend analysis and industry comparison important to financial ratio analysis? Trend analysis assists financial analysts and managers see whether a company's current fin
Measuring volatility is very important as it is a critical input in valuation models. In subsequent chapters we will see the importance of assumed volatilit
Characteristics - Nature of Financial Management: 1) Financial Planning and Control: Finance is a base for all the business activities. Business Activities should be not on
Following are the details relating to three companies which are identical in terms of ''r'' ABC ltd MNC ltd XYZ ltd Cost of capital
Discuss the advantages and disadvantages of the gold standard. Answer: The benefits of the gold standard include: (I) as the supply of gold is restricted, countries cannot compr
Q. What do you mean by Economic risk? Transaction risk is appears as the short-term manifestation of economic risk which could be defined as the risk of the present value of a
Define how earnings available to common stockholders and common stock dividends paid from the current income statement influence the balance sheet item retained earnings. The a
Stock Market indicators: Stock indices can be organized by weighting the sample of stocks. The stock indicators can be of four types: price-weighted average, volume-weighted av
Expected volatility is a major factor that affects the value of an option. Expected volatility of an option on bond is referred to as 'expected yield volatility'. The
Assume that the treasurer of a company has an extra cash reserve of $1,000,000 to invest for six months. The six-month interest rate is 8% per year in the U.S. and 6% per year in G
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!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd