Explain the first method of calibration
Explain the first way of calibration if we can’t measure that parameter.
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Let’s see the first process in action. Examine, possibly, equity data to try to calculate what volatility is. The problem along with it is that this is necessarily backward looking, by using data from the past. It might not be relevant to the future. The other problem with it is that it might give prices which are inconsistent with the market. For illustration, you are interested in buying a certain option. But you think volatility is 27%, therefore you use that number to price the option and the price you determine is $15. Although, the market price of that option is $19. You can either choose that the option is incorrectly priced or which your volatility estimate is wrong.
Great Corporation has the following capital situation. Debt: One thousand bonds were issued five years ago at a coupon rate of 11%. They had 20-year terms and $1,000 face values. They are now selling to yield 9%. The tax rate is 37% Preferred stock: Two thousand shares of preferred are outstanding
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Who introduced the model of discrete set of rates?
A stock whose value is now $44.75 is growing on average by 15 percent per annum. Its volatility is 22 percent. The interest rate is 4 percent. You need to value a call option along with a strike of $45, expiring in two months’ time. So, what can you do?
Explain the reasons of Quants to like, close form solution?
Why are most futures positions closed out through a reversing trade instead of held to delivery?In forward markets, about 90 percent of all contracts that are primarily established result in the short making delivery to the long of the asset und
Describe a full definition of arbitrage. Arbitrage can be described as the act of simultaneously buying & selling the similar or equivalent assets or commodities for the reason of making certain, guaranteed pro
Show how Kareem's WACC would change if the tax rate dropped to 25 percent and the estimated cost of equity capital were based on a risk-free rate of 7 percent, a market risk premium of 8 percent, and a systematic risk measure or beta of 2.0.
How is Sharpe ratio calculated?
Explain the factors that responsible for the recent surge in international portfolio investment (IPI)?
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