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SYLLABUS
Previous:
3.5 Hedging a bond
Up:
3 FORECASTING WITH UNCERTAINTY
Next:
3.7 Exercises
3.6 Computer quiz
By combining anti-correlated securities, a portfolio becomes
more risky
more predictable
more profitable
No arbitrage arguments state that
arbitrage can never exceed the risk free interest rate
arbitrageurs immediately seize opportunities for making risk-free profits
without using arbitrage opportunities, a portfolio grows at the risk-free rate
Which of the following random variables are martingales?
betting on ``heads'' when you flip a coin
the value of a share
the daily price increment to the value of a share in a mature company
the daily increment to the short term interest rate
playing Russian roulette
A discrete rather than continuous delta-hedging of the portfolio
reduces the expected return of the portfolio
increases the expected return of the portfolio
increases the amount of risk in the portfolio
A negative market price of risk
signifies that
the underlying is cheap, signalling a good buying opportunity
the stock market is more volatile than the bond market
the bond market will outperform the stock market
the investors expect the underlying to under perform the spot rate
The coefficients (
,
, etc) in the Black-Scholes and Vasicek equations
have been assumed constant
can be arbitrary deterministic functions of time and the stochastic variable
can be arbitrary stochastic functions
SYLLABUS
Previous:
3.5 Hedging a bond
Up:
3 FORECASTING WITH UNCERTAINTY
Next:
3.7 Exercises
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Lifelong-learners
at 15:50:12, September 29th, 2020