Home » Risk Modeling The deadline is Sunday,December 11th, 2011 1. Consider a futures contract to purchase a coupon-bearing bond whose current price is $875….

Risk Modeling The deadline is Sunday,December 11th, 2011 1. Consider a futures contract to purchase a coupon-bearing bond whose current price is $875….

Risk ModelingThe deadline is Sunday,December 11th, 20111. Consider a futures contract to purchase a coupon-bearing bond whose current price is $875. The futures contract matures in 15 months and the bond matures in 4 years. The bond holder receives an annual coupon of $60 paid semiannually and the next coupon will be paid in 3 months. Thus, if we want to take a long position in the futures on this bond we will have to take into account three coupons until the maturity of the futures (the last coupon will be paid immediately prior to the delivery date). We can borrow and lend money at the following continuously compounded interest rates:•R3 = 7% per annum for 3 months•R9 = 9% per annum for 9 months•R10 = 10% per annum for 10 months•R15 = 11% per annum for 15 months Assume that the futures price and the spot price follow the futures-spot parity condition.a)If the futures price is $905 will you be able to benefit from these prices? If a profit is possible then present the strategy that you can use to obtain this profit.b)What if the futures price is $910? Can you make any profit? Explain how.2. Consider the following prices of the stock and the futures at the end of the one month. monthspot pricesfutures prices112.00015.000212.02915.021312.04915.056412.00515.010512.01315.011612.03915.055712.02015.026812.01015.000912.00314.9711012.04615.0191112.05715.0131212.02114.9771312.00314.9661412.01214.9851511.98014.9581612.00314.987Compute the optimal number of futures contracts that is needed for the best hedge, considering that you are long on the spot market and you wish to sell your stock in 1 month.What can you say about the hedge effectiveness?Describe how you obtained the hedge ratio. Who is your independent variable?

Show more

Calculate Your Essay Price
(550 words)

Approximate price: $22

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 10% with the coupon code: best10