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FM07

Options, Futures & Other Derivatives

(For CNM Cases)

Assignment – II

Assignment Code: 2016FM07A2                                                   Last date of Submission: 30^th April 2016

                                                                                                                   Maximum Marks: 100

Attempt all questions. All the questions are compulsory & carry equal marks.

Section-A

1.         What is a Swap Rate? What is the relationship between Swap rates & Par yields?

2.         “An American option is always worth atleast as much as a European option on the same             asset with the same strike price & exercise date” Explain.

3.         What trading strategy creates a reverse calendar spread? Also explain how an     aggressive bear spread can be created using options.

4.         Explain the principle of risk-neutral valuation.

Section-B

Case Study

The shares of a company are being sold for Rs.50 per share. A call option (strike price of Rs.49) for 200 days is available at Rs.4 per share. The annual risk free rate of interest is 7%. The standard deviation of the return of this share may be considered as 0.3. Find out the value of the option. Use black & Scholes model, given that the expiry period of the call option is 200 days.