UN-14E

A B C

1
Black-Scholes Option Pricing Formula
Applied to General Pills Put
2 S 56 Stock price
3 X 50 Exercise price
4 T 1 Time remaining
5 r 8.00% Risk-free rate of interest
6 Sigma 30% Stock volatility
7
8 d1 0.7944 <-- (LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))
9 d2 0.4944 <-- d1-Sigma*SQRT(T)
10
11 N(d1) 0.7865 <-- Uses formula NormSDist(d1)
12 N(d2) 0.6895 <-- Uses formula NormSDist(d2)
13
14 Call price 12.22 <-- S*N(d1)-X*exp(-r*T)*N(d2)
15 Put price 2.38 <-- call price - S + X*Exp(-r*T): by Put-Call parity
 UN-14E

A B C

1
Black-Scholes Option Pricing Formula
Applied to General Pills Put
2 S 56 Stock price
3 X 50 Exercise price
4 T 1 Time remaining
5 r 8.00% Risk-free rate of interest
6 Sigma 30% Stock volatility
7
8 d1 0.7944 <-- (LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))
9 d2 0.4944 <-- d1-Sigma*SQRT(T)
10
11 N(d1) 0.7865 <-- Uses formula NormSDist(d1)
12 N(d2) 0.6895 <-- Uses formula NormSDist(d2)
13
14 Call price 12.22 <-- S*N(d1)-X*exp(-r*T)*N(d2)
15 Put price 2.38 <-- call price - S + X*Exp(-r*T): by Put-Call parity
16
17 Calculating the portfolio insurance proportions
18 Omega 75.45% #VALUE!
19 1-omega 24.55% #VALUE!
 UN-14E

A B C

1
Black-Scholes Option Pricing Formula
Applied to General Pills Put
2 S 60 Stock price
3 X 50 Exercise price
4 T 0.9808 #VALUE!
5 r 8.00% Risk-free rate of interest
6 Sigma 30% Stock volatility
7
8 d1 1.0263 <-- (LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))
9 d2 0.7292 <-- d1-Sigma*SQRT(T)
10
11 N(d1) 0.8476 <-- Uses formula NormSDist(d1)
12 N(d2) 0.7671 <-- Uses formula NormSDist(d2)
13
14 Call price 15.40 <-- S*N(d1)-X*exp(-r*T)*N(d2)
15 Put price 1.63 <-- call price - S + X*Exp(-r*T): by Put-Call parity
16
17 Calculating the portfolio insurance proportions
18 Omega 82.53% #VALUE!
19 1-omega 17.47% #VALUE!
 Pages 581-583

PORTFOLIO INSURANCE SIMULATION

X 50 Exercise price of puts in strategy
Mean, m 15% Mean of lognormal distribution
Sigma, s 30% Sigma of lognormal distribution
r 8% Interest rate
Initial 1000 Initial investment

Portfolio value, beginning of week

d1 , Omega,
Stock price Stock price
beginning Portfolio
Week at begin. of at end of begining Stocks Bonds
of value
week week of week week
0 56.00 60.00 0.7944 0.7545 754.50 245.50 1000.00
1 60.00 52.00 1.0263 0.8253 870.06 184.22 1054.27
2 52.00 ??? 0.5419 0.6635 622.73 315.82 938.55

Page 4
 Pages 581-583

ON

Portfolio value, end of week

Portfolio
Stocks Bonds
value

808.39 245.88 1054.27

754.05 184.50 938.55
??? 316.30 ???

Page 5
 Page 585-86

A B C D E F G H
1 PORTFOLIO INSURANCE SIMULATION
2 X 50 Exercise price of puts in strategy
3 Mean, m 15% Mean of lognormal distribution
4 Sigma, s 30% Sigma of lognormal distribution
5 r 8% Interest rate
6 Initial 1000 Initial investment
7
8 Portfolio value, beginning of week

Stock price Stock price d1, Omega,

9 Week at begin. of at end of beginning beginning Stocks Bonds
week week of week of week

10 0 56.00 53.61 0.7944 0.7545 754.50 245.50

11 1 53.61 50.96 0.6470 0.7029 680.53 287.58
12 2 50.96 50.51 0.4734 0.6364 595.04 339.96
13 3 50.51 47.70 0.4392 0.6232 579.68 350.55
14 4 47.70 47.68 0.2366 0.5394 484.61 413.87
15 5 47.68 45.33 0.2295 0.5370 482.71 416.25
16 6 45.33 46.71 0.0440 0.4588 401.77 474.00
17 7 46.71 48.31 0.1434 0.5016 445.83 442.90
18 8 48.31 49.11 0.2587 0.5512 498.68 406.06
19 9 49.11 48.02 0.3134 0.5747 525.10 388.56
20 10 48.02 45.45 0.2245 0.5380 485.59 416.95
21 11 45.45 47.19 0.0117 0.4486 393.51 483.68
22 12 47.19 47.85 0.1454 0.5059 451.73 441.26
23 13 47.85 48.50 0.1920 0.5263 473.68 426.37
24 14 48.50 44.49 0.2373 0.5460 495.30 411.78
25 15 44.49 42.46 -0.1096 0.4012 347.79 519.03
26 16 42.46 43.19 -0.3083 0.3234 275.45 576.27
27 17 43.19 43.46 -0.2534 0.3453 296.04 561.28
28 18 43.46 42.55 -0.2408 0.3510 301.91 558.17
29 19 42.55 44.13 -0.3434 0.3126 267.14 587.44
30 20 44.13 42.79 -0.2042 0.3671 317.70 547.70
31 21 42.79 38.00 -0.3504 0.3116 266.96 589.67
32 22 38.00 37.27 -0.8876 0.1467 121.40 706.26
33 23 37.27 37.11 -1.0003 0.1220 100.82 725.59
34 24 37.11 36.76 -1.0483 0.1128 93.28 733.82
35 25 36.76 37.72 -1.1223 0.0993 82.17 745.19
36 26 37.72 40.11 -1.0343 0.1168 96.99 733.64
37 27 40.11 37.71 -0.7711 0.1801 150.89 687.02
38 28 37.71 39.18 -1.1007 0.1050 87.14 742.82
39 29 39.18 37.16 -0.9446 0.1381 115.25 719.25
40 30 37.16 35.92 -1.2504 0.0806 66.87 762.78
41 31 35.92 33.18 -1.4697 0.0523 43.37 785.23
42 32 33.18 33.54 -1.9461 0.0176 14.59 811.91
43 33 33.54 35.22 -1.9497 0.0177 14.63 813.28
44 34 35.22 34.58 -1.7405 0.0296 24.52 805.36
45 35 34.58 33.14 -1.9121 0.0198 16.45 814.23

Page 6
 Page 585-86

A B C D E F G H
46 36 33.14 33.15 -2.2399 0.0085 7.08 824.17
47 37 33.15 33.47 -2.3266 0.0068 5.64 826.88
48 38 33.47 34.20 -2.3629 0.0062 5.17 828.68
49 39 34.20 35.10 -2.3234 0.0070 5.87 829.37
50 40 35.10 35.18 -2.2544 0.0086 7.23 829.44
51 41 35.18 37.68 -2.3553 0.0066 5.55 832.42
52 42 37.68 36.82 -1.9677 0.0188 15.76 823.88
53 43 36.82 37.28 -2.2774 0.0085 7.14 833.41
54 44 37.28 36.70 -2.3313 0.0074 6.27 835.65
55 45 36.70 37.70 -2.6567 0.0029 2.47 840.64
56 46 37.70 35.60 -2.6295 0.0033 2.75 841.73
57 47 35.60 37.72 -3.5220 0.0002 0.13 845.49
58 48 37.72 38.96 -3.2727 0.0004 0.34 846.58
59 49 38.96 38.99 -3.3629 0.0003 0.26 847.98
60 50 38.99 41.97 -4.1436 0.0000 0.01 849.53
61 51 41.97 42.84 -4.1505 0.0000 0.01 850.84
62 52 42.84

Page 7
 Page 585-86

I J K L M N O P Q
ATION 1
2
3
4
5
6
7
tfolio value, beginning
8 of week Portfolio value, end of week

Standard 1200
Portfolio Portfolio P
9 Stocks Bonds normal
value value
deviates
1000
10 1000.00 722.24 245.88 968.12 -1.11973804
11 968.12 646.97 288.02 935.00 -1.28498414
12 935.00 589.75 340.48 930.23 -0.28410568 800

Insured portfolio value

13 930.23 547.40 351.09 898.48 -1.44679689
14 898.48 484.45 414.51 898.96 -0.07745484
15 898.96 458.87 416.89 875.77 -1.28638476 600
16 875.77 414.00 474.73 888.73 0.65187578
17 888.73 461.15 443.59 904.73 0.7427127
18 904.73 506.97 406.68 913.65 0.32723278 400
19 913.65 513.39 389.15 902.54 -0.61152946
20 902.54 459.59 417.60 877.19 -1.39192252
21 877.19 408.57 484.42 892.99 0.83319264 200
22 892.99 458.11 441.94 900.05 0.26805196
23 900.05 480.05 427.03 907.08 0.25198915
24 907.08 454.40 412.42 866.82 -2.1408232 0
25 866.82 331.88 519.83 851.71 -1.19459401
0 2 4 6 8 10 12 14 1
26 851.71 280.17 577.15 857.32 0.3392006
27 857.32 297.92 562.15 860.07 0.08344159
28 860.07 295.56 559.02 854.58 -0.58037358
29 854.58 277.05 588.35 865.40 0.80632162
30 865.40 308.08 548.54 856.63 -0.80780637
31 856.63 237.09 590.58 827.66 -2.92187906
32 827.66 119.07 707.35 826.41 -0.53691451
33 826.41 100.39 726.71 827.10 -0.1717774
34 827.10 92.40 734.95 827.35 -0.29639295
35 827.35 84.30 746.34 830.63 0.54612656
36 830.63 103.13 734.77 837.91 1.40720203
37 837.91 141.88 688.07 829.96 -1.54866029
38 829.96 90.54 743.96 834.50 0.85074817
39 834.50 109.28 720.36 829.65 -1.34604306
40 829.65 64.65 763.95 828.60 -0.88180968
41 828.60 40.05 786.44 826.49 -1.97975169
42 826.49 14.75 813.16 827.90 0.19301183
43 827.90 15.36 814.53 829.89 1.10285782
44 829.89 24.08 806.60 830.68 -0.51111329
45 830.68 15.77 815.48 831.25 -1.08739187

Page 8
 Page 585-86

I J K L M N O P Q
46 831.25 7.09 825.44 832.52 -0.06288474
47 832.52 5.70 828.15 833.85 0.1581293
48 833.85 5.28 829.96 835.24 0.45234401
49 835.24 6.03 830.64 836.67 0.55609917
50 836.67 7.24 830.72 837.97 -0.01357876
51 837.97 5.94 833.70 839.64 1.57773229
52 839.64 15.40 825.15 840.55 -0.62142817
53 840.55 7.23 834.69 841.92 0.22663926
54 841.92 6.17 836.94 843.11 -0.44658918
55 843.11 2.53 841.94 844.47 0.57648549
56 844.47 2.59 843.02 845.62 -1.44592832
57 845.62 0.14 846.79 846.93 1.31853994
58 846.93 0.35 847.89 848.24 0.70896249
59 848.24 0.26 849.29 849.55 -0.0466423
60 849.55 0.01 850.84 850.85 1.69782197
61 850.85 0.01 852.15 852.17 0.42271154
62 852.17

Page 9
 Page 585-86

R S T U V W X Y Z
1
2
3
4
5
6
7
8

1200 60
9 Portfolio Insurance Simulation

1000 50
10
11
800 12 40
Insured portfolio value

13
14

Stock price
600 15 30
16
17
400 18 20
19
20
200 21 10
Insured portfolio
22
Stock price
23
0 24 0
0 25
2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52
26
Week
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45

Page 10
 Page 587

A B C D E F G H
1 PORTFOLIO INSURANCE SIMULATION
2 X 50 Exercise price of puts in strategy
3 Mean, m 15% Mean of lognormal distribution
4 Sigma, s 30% Sigma of lognormal distribution
5 r 8% Interest rate
6 Initial 1000 Initial investment
7
8 Portfolio value, beginning of week

d1 , Omega,
Stock price Stock price
beginning
9 Week at begin. of at end of beginning Stocks Bonds
of
week week of week week

10 0 56.00 56.65 0.7944 0.7545 754.50 245.50

11 1 56.65 55.71 0.8329 0.7675 774.52 234.61
2 55.71 1100
52.97 0.7759 0.7490 Portfolio
746.42 250.17
12 Insurance Simulation
13 3 52.97 50.16 0.6029 0.6873 660.10 300.27
14 4 50.16 51.69 0.4113 0.6123 566.86 358.89
15 5 51.69 52.64
1050 0.5124 0.6534 616.54 327.02
16 6 52.64 53.92 0.5742 0.6778 647.63 307.81
17 7 53.92 54.67 0.6580 0.7095 689.41 282.25
18 8 54.67 53.14 0.7068 0.7274 714.09 267.60
Insured portfolio value

19 9 53.14 1000
51.62 0.6020 0.6897 663.58 298.51
20 10 51.62 51.25 0.4928 0.6482 611.69 331.92
21 11 51.25 51.74 0.4630 0.6370 598.64 341.14
22 12 51.74 53.76 0.4956 0.6504 615.32 330.69
13 53.76 950
57.63 0.6398 0.7056 684.77 285.72
23
24 14 57.63 57.40 0.9098 0.7957 811.81 208.40
25 15 57.40 55.63 0.8969 0.7922 805.92 211.41
26 16 55.63 56.94
900 0.7743 0.7538 748.37 244.46
27 17 56.94 59.30 0.8699 0.7847 793.17 Insured
217.62
portfolio
28 18 59.30 58.32 1.0401 0.8334 870.06 Stock
173.94
price
29 19 58.32 60.41 0.9761 0.8164 840.86 189.06
30 20 60.41 850
56.79 1.1308 0.8565 908.19 152.20
31 21 56.79 52.55
0 2 40.8718
6 8 10 0.7868
1 1 1 1 2 2 2 2214.57
2 4 6 8 791.64
0 2 4 6 28 30 32 34 36 38 40 42 4
32 22 52.55 54.88 0.5345 0.6710 635.69 Week311.64
33 23 54.88 54.78 0.7265 0.7408 723.00 252.98
34 24 54.78 54.67 0.7203 0.7392 720.73 254.34
35 25 54.67 54.16 0.7135 0.7374 718.26 255.83
36 26 54.16 56.19 0.6715 0.7233 700.03 267.74
37 27 56.19 56.58 0.8503 0.7826 778.25 216.19
38 28 56.58 54.70 0.8897 0.7949 794.99 205.14
39 29 54.70 55.88 0.7270 0.7439 724.57 249.39
40 30 55.88 53.56 0.8406 0.7810 773.17 216.85
41 31 53.56 55.86 0.6259 0.7101 680.51 277.82
42 32 55.86 55.91 0.8539 0.7859 776.40 211.49
43 33 55.91 59.37 0.8683 0.7907 782.01 206.98
44 34 59.37 57.91 1.2179 0.8793 912.37 125.23
45 35 57.91 56.95 1.0942 0.8521 865.21 150.18

Page 11
 Page 587

A B C D E F G H
46 36 56.95 56.62 1.0132 0.8324 833.45 167.85
47 37 56.62 54.05 0.9954 0.8281 825.42 171.31
48 38 54.05 56.70 0.7167 0.7458 715.60 243.95
49 39 56.70 54.02 1.0471 0.8422 838.01 157.03
50 40 54.02 53.63 0.7371 0.7538 720.37 235.29
51 41 53.63 53.78 0.7001 0.7424 705.86 244.98
52 42 53.78 53.76 0.7371 0.7552 719.87 233.31
53 43 53.76 55.18 0.7536 0.7613 725.63 227.54
54 44 55.18 54.16 1.0004 0.8328 810.09 162.60
55 45 54.16 55.82 0.8791 0.8006 767.05 191.00
56 46 55.82 57.28 1.2225 0.8842 868.16 113.71
57 47 57.28 58.26 1.5910 0.9420 946.52 58.24
58 48 58.26 61.14 1.9530 0.9738 994.22 26.76
59 49 61.14 60.16 2.8924 0.9980 1068.16 2.09
60 50 60.16 60.58 3.2267 0.9994 1052.45 0.67
61 51 60.58 60.34 4.6698 1.0000 1060.34 0.00
62 52 60.34

Page 12
 Page 587

I J K L M N O
ATION 1
2
3
4
5
6
7
tfolio value, beginning
8 of week Portfolio value, end of week

Standard
Portfolio Portfolio
9 Stocks Bonds Normal
value value
Deviates

10 1000.00 763.25 245.88 1009.13 0.20776383

11 1009.13 761.62 234.97 996.59 -0.47303388
996.59 709.81 250.56 70960.37 -1.27803105
lio Insurance 12 Simulation
13 960.37 625.02 300.73 925.75 -1.38191808
14 925.75 584.13 359.44 60943.57 0.65168706
15 943.57 627.91 327.53 955.44 0.3699131
16 955.44 663.37 308.29 971.66 0.5080642
17 971.66 699.00 282.69 50981.69 0.26298039
18 981.69 694.07 268.01 962.08 -0.75282969
19 962.08 644.64 298.97 943.61 -0.7652784
40
20 943.61 607.35 332.43 939.78 -0.24031806
Stock price

21 939.78 604.34 341.67 946.00 0.15836122

22 946.00 639.29 331.20 30970.49 0.84954081
23 970.49 734.05 286.16 1020.21 1.60099262
24 1020.21 808.60 208.72 1017.33 -0.16432864
25 1017.33 781.11 211.73 20992.84 -0.8211282
26 992.84 765.96 244.84 1010.80 0.48900802
Insured27 1010.80
portfolio 826.04 217.96 1044.00
10 0.90668436
28
Stock price 1044.00 855.71 174.21 1029.92 -0.46910145
29 1029.92 871.04 189.35 1060.39 0.77815798
30 1060.39 853.77 152.43 01006.21 -1.55452199
2 2 2 2 2 3 3 3 3 3 4 4 4 4 4 214.90
0 2 4 6 8
31 0 1006.21
2 4 6 8 0 2732.42
4 6 8 50 52 947.32 -1.93807864
Week 32 947.32 663.87 312.12 975.98 0.97319798
33 975.98 721.70 253.37 975.07 -0.11257498
34 975.07 719.36 254.73 974.09 -0.11511588
35 974.09 711.54 256.22 967.76 -0.29535386
36 967.76 726.29 268.15 994.44 0.81610324
37 994.44 783.61 216.52 1000.13 0.09557652
38 1000.13 768.50 205.46 973.96 -0.8838424
39 973.96 740.24 249.77 990.02 0.44498393
40 990.02 741.14 217.18 958.32 -1.08628683
41 958.32 709.65 278.24 987.90 0.93876679
42 987.90 777.18 211.82 989.00 -0.04534058
43 989.00 830.30 207.30 1037.60 1.37087227
44 1037.60 889.96 125.42 1015.38 -0.66728035
45 1015.38 850.90 150.41 1001.31 -0.47012691

Page 13
 Page 587

I J K L M N O
46 1001.31 828.61 168.11 996.72 -0.20940547
47 996.72 787.98 171.57 959.55 -1.184967
48 959.55 750.72 244.32 995.05 1.08229415
49 995.05 798.38 157.28 955.66 -1.2337614
50 955.66 715.18 235.65 950.84 -0.24299652
51 950.84 707.82 245.36 953.18 -0.00248633
52 953.18 719.50 233.67 953.17 -0.08159986
53 953.17 744.79 227.89 972.69 0.55726105
54 972.69 795.20 162.85 958.05 -0.51530151
55 958.05 790.58 191.29 981.87 0.65689846
56 981.87 890.87 113.89 1004.76 0.55155169
57 1004.76 962.65 58.33 1020.98 0.33685183
58 1020.98 1043.44 26.81 1070.25 1.09223947
59 1070.25 1051.02 2.09 1053.12 -0.45802949
60 1053.12 1059.67 0.67 1060.34 0.09503992
61 1060.34 1056.24 0.00 1056.24 -0.16246759
62 1056.24

Page 14
 Simulation to play with

A B C D E F G H

1
PORTFOLIO INSURANCE SIMULATION
Press [Ctrl]+a to run simulation
2 X 50 Exercise price of puts in strategy Pressing [ctrl]+a runs the macro which
3 Mean, m 15% Mean of lognormal distribution provides a new simulation.
4 Sigma, s 30% Sigma of lognormal distribution
5 r 8% Interest rate
6 Initial 1000 Initial investment
7
8 Portfolio value, beginning of week

d1 , Omega,
Stock price Stock60price
beginning
9 Week at begin. of at end of beginning
of
Portfolio
StocksInsurance
Bonds Simulation
week week of week week
50
10 0 56.00 51.92 0.7944 0.7545 754.50 245.50
11 1 51.92 48.52 0.5392 0.6620 625.79 319.55
12 2 48.52 48.29 0.3065 0.5677 513.72 391.20
40
13 3 48.29 48.13 0.2852 0.5593 505.14 397.97
14 4 48.13 45.52 0.2678 0.5526 498.42 403.56
Stock price

15 5 45.52 43.90 0.0666 0.4677 409.48 466.08

30
16 6 43.90 42.70 -0.0692 0.4112 354.38 507.36
17 7 42.70 42.31 -0.1783 0.3674 313.33 539.47
18 8 42.31 41.99 -0.2220 0.3508 298.43 552.37
20
19 9 41.99 38.89 -0.2607 0.3363 285.70 563.72
20 10 38.89 37.98 -0.5580 0.2311 191.63Insured portfolio
637.51
21 11 37.98 37.43 -0.6618 0.1998 164.96Stock660.72
price
10
22 12 37.43 39.71 -0.7347 0.1796 148.08 676.23
23 13 39.71 41.89 -0.5261 0.2436 203.23 631.12
24 14 41.89 39.84 -0.3337 0.3123 264.34 582.15
15 39.84 041.39 -0.5461 0.2385 198.99 635.46
25
26 16 41.39 0 2 4 -0.4101
43.53 6 8 10 10.2858 22 24 26602.19
2 14 16 18 20240.99 28 30 32 34 36 38 40 42 44
27 17 43.53 40.87 -0.2209 0.3580 306.68 Week
549.89
28 18 40.87 38.33 -0.4942 0.2580 216.35 622.30
29 19 38.33 39.36 -0.7799 0.1719 142.04 684.14
30 20 39.36 39.03 -0.6894 0.1978 164.42 666.63
31 21 39.03 35.55 -0.7476 0.1821 151.24 679.45
32 22 35.55 36.99 -1.1798 0.0879 71.89 746.38
33 23 36.99 35.41 -1.0338 0.1151 94.64 727.68
34 24 35.41 35.26 -1.2619 0.0759 62.23 757.15
35 25 35.26 38.22 -1.3160 0.0687 56.37 763.92
36 26 38.22 40.27 -0.9716 0.1300 107.43 718.78
37 27 40.27 40.52 -0.7515 0.1855 154.51 678.55
38 28 40.52 37.52 -0.7484 0.1871 156.27 678.80
39 29 37.52 39.56 -1.1626 0.0944 77.83 746.69
40 30 39.56 40.73 -0.9298 0.1422 118.05 711.86
41 31 40.73 37.35 -0.8105 0.1727 144.13 690.39
42 32 37.35 39.04 -1.3096 0.0729 60.02 763.59
43 33 39.04 38.75 -1.1120 0.1060 87.75 739.76

Page 15
 Simulation to play with

A B C D E F G H
44 34 38.75 36.54 -1.1991 0.0912 75.48 752.51
45 35 36.54 35.13 -1.5895 0.0419 34.54 790.31
46 36 35.13 36.09 -1.8908 0.0211 17.39 807.33
47 37 36.09 37.46 -1.7999 0.0265 21.90 804.54
48 38 37.46 35.28 -1.6384 0.0387 32.06 796.46
49 39 35.28 36.60 -2.1165 0.0123 10.21 817.66
50 40 36.60 36.36 -1.9653 0.0184 15.25 814.26
51 41 36.36 36.35 -2.1172 0.0127 10.51 820.16
52 42 36.35 34.59 -2.2403 0.0093 7.70 824.23
53 43 34.59 34.98 -2.7800 0.0019 1.59 831.24
54 44 34.98 33.24 -2.8721 0.0014 1.20 832.92
55 45 33.24 36.01 -3.5574 0.0001 0.11 835.24
56 46 36.01 37.29 -3.0803 0.0008 0.63 836.01
57 47 37.29 37.49 -3.0234 0.0009 0.79 837.16
58 48 37.49 39.58 -3.3466 0.0003 0.26 838.98
59 49 39.58 37.66 -3.1426 0.0007 0.56 839.99
60 50 37.66 38.52 -4.7344 0.0000 0.00 841.81
61 51 38.52 37.77 -6.2126 0.0000 0.00 843.11
62 52 37.77

Page 16
 Simulation to play with

I J K L M N O
ATION 1
on
ssing [ctrl]+a runs
2 the macro which
vides a new simulation.
3
4
5
6
7
tfolio value, beginning
8 of week Portfolio value, end of week

1200 Standard
Portfolio Portfolio
olio Insurance
9 Simulation
value
Stocks Bonds
value
Normal
Deviates
1000
10 1000.00 699.47 245.88 945.34 -1.88984814
11 945.34 584.87 320.04 904.91 -1.69492068
12 904.91 511.31 391.80 903.11 -0.18203423
800 Insured portfolio value
13 903.11 503.39 398.59 901.98 -0.15255409
14 901.98 471.37 404.19 875.56 -1.41029886
15 875.56 394.94 466.80 861.74 -0.93793687
600
16 861.74 344.66 508.14 852.80 -0.73808451
17 852.80 310.50 540.30 850.79 -0.28800969
18 850.79 296.21 553.22 849.42 -0.24875249
400
19 849.42 264.55 564.59 829.14 -1.91796062
Insured portfolio
20 829.14 187.19 638.49 825.68 -0.63297648
Stock price
21 825.68 162.57 661.74 824.31 -0.42078909
200
22 824.31 157.08 677.27 834.35 1.34945822
23 834.35 214.40 632.09 846.50 1.21722678
24 846.50 251.40 583.05 834.45 -1.27630074
834.45 206.74 636.44 0 843.18 0.8494294
25
0 22 24 26 2268 30 32843.18
34 36 38 40 42 253.45
44 46 48 603.12
50 52 856.57 1.14250952
Week27 856.57 287.92 550.73 838.65 -1.58682269
28 838.65 202.92 623.26 826.18 -1.60959644
29 826.18 145.86 685.19 831.05 0.5685547
30 831.05 163.03 667.66 830.69 -0.27400347
31 830.69 137.77 680.49 818.26 -2.31135346
32 818.26 74.79 747.53 822.32 0.88316483
33 822.32 90.59 728.80 819.39 -1.12174575
34 819.39 61.97 758.32 820.29 -0.17201046
35 820.29 61.11 765.09 826.20 1.87234036
36 826.20 113.18 719.89 833.07 1.18512162
37 833.07 155.47 679.60 835.07 0.07937388
38 835.07 144.68 679.85 824.53 -1.92085281
39 824.53 82.07 747.84 829.91 1.20306822
40 829.91 121.56 712.96 834.52 0.6354071
41 834.52 132.16 691.45 823.61 -2.15386535
42 823.61 62.75 764.76 827.51 0.99806584
43 827.51 87.09 740.90 827.99 -0.25183112

Page 17
 Simulation to play with

I J K L M N O
44 827.99 71.18 753.67 824.85 -1.47822448
45 824.85 33.20 791.53 824.72 -1.02073045
46 824.72 17.87 808.57 826.44 0.58037358
47 826.44 22.73 805.78 828.52 0.82908628
48 828.52 30.19 797.68 827.87 -1.5123851
49 827.87 10.59 818.92 829.51 0.81173539
50 829.51 15.16 815.51 830.67 -0.2254626
51 830.67 10.51 821.42 831.93 -0.07400331
52 831.93 7.32 825.50 832.83 -1.26719897
53 832.83 1.61 832.52 834.12 0.20487278
54 834.12 1.14 834.20 835.35 -1.29997716
55 835.35 0.11 836.53 836.64 1.85539648
56 836.64 0.65 837.30 837.95 0.77299092
57 837.95 0.79 838.45 839.24 0.05583388
58 839.24 0.27 840.28 840.55 1.23835889
59 840.55 0.53 841.28 841.82 -1.26379064
60 841.82 0.00 843.11 843.11 0.47132289
61 843.11 0.00 844.41 844.41 -0.54169277
62 844.41

Page 18
 A B C
1 INSURING TOTAL PORTFOLIO RETURNS
2 z 0.9300 Insurance level
3
4 S0 56 Current stock price
5 X 57.0000 Exercise price
6 T 1 Time to maturity of option (in years)
7 r 8.00% Risk-free rate of interest
8 Sigma 30% Stock volatility
9
10 Alpha #VALUE! #VALUE!
11
12 Equation to be solved #VALUE! #VALUE!
13
14 Data table
15 Stock price ¯ #VALUE! #VALUE!
16 50 #VALUE!
17 51 #VALUE! At Which X to Create a Synthetic Put?
18 52 #VALUE!
12
19 53 #VALUE!
20 54 #VALUE! 10
21 55 #VALUE!
22 56 #VALUE! 8
23 57 #VALUE!
24 58 #VALUE! 6
25 59 #VALUE!
26 60 #VALUE! 4
27
28 2 X($)
29
30 0
31 50 51 52 53 54 55 56 57 58 59 60
32
 D
LIO RETURNS
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
to Create a 17
Synthetic Put?
18
19
20
21
22
23
24
25
26
27
28
X($)
29
30
54 55 31 56 57 58 59 60
32
 A B C
1 INSURING TOTAL PORTFOLIO RETURNS
2 z 0.9300 Insurance level
3
4 S0 56 Current stock price
5 X 56.4261 Exercise price
6 T 1 Time to maturity of option (in years)
7 r 8.00% Risk-free rate of interest
8 Sigma 30% Stock volatility
9
10 Alpha #VALUE! #VALUE!
11
12 Equation to be solved #VALUE! #VALUE!
13
14 Check
15 Cost of shares #VALUE!
16 Cost of puts #VALUE!
17 Total cost #VALUE!
18
19 Minimum portfolio return #VALUE! #VALUE!
 A B C
1 INSURING TOTAL PORTFOLIO RETURNS
2 z 1.0800 Insurance level
3
4 S0 56 Current stock price
5 X 104.8368 Exercise price
6 T 1 Time to maturity of option (in years)
7 r 8.00% Risk-free rate of interest
8 Sigma 30% Stock volatility
9
10 Alpha #VALUE! #VALUE!
11
12 Equation to be solved #VALUE! #VALUE!
13
14 Check
15 Cost of shares #VALUE!
16 Cost of puts #VALUE!
17 Total cost #VALUE!
18
19 Minimum portfolio return #VALUE! #VALUE!
20
21
22
23
24
 D E F G
1
2
3
4
5
6
7 SOLVER SCREEN FOR SOLUTION:
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
 A B C
1 INSURING TOTAL PORTFOLIO RETURNS
2 z 1.0900 Insurance level
3
4 S0 56 Current stock price
5 X 122.8824 Exercise price
6 T 1 Time to maturity of option (in years)
7 r 8.00% Risk-free rate of interest
8 Sigma 30% Stock volatility
9
10 Alpha #VALUE! #VALUE!
11
12 Equation to be solved #VALUE! #VALUE!
13
14 Check
15 Cost of shares #VALUE!
16 Cost of puts #VALUE!
17 Total cost #VALUE!
18
19 Minimum portfolio return #VALUE! #VALUE!
 A B C
1 IMPLICIT PUTS AND ASSET VALUES
2 Va 96.70586 Actual asset value
3 X 85 Money-back guarantee
4 r 10.00% Risk-free rate of interest
5 T 1 Time to maturity of option (in years)
6 Sigma 30% Stock volatility
7 d1 0.9134 <-- (LN(S/X)+(r+0.5*sigma^2)*T)/(sigma*SQRT(T))
8 d2 0.6134 <-- d1 - sigma*SQRT(T)
9
10 N(d1) 0.8195 <-- Uses formula NormSDist(d1)
11 N(d2) 0.7302 <-- Uses formula NormSDist(d2)
12
13 Put price 3.29 <-- =-B3*(1-B11)+B4*EXP(-B5*B6)*(1-B12)
14 Put + asset value 100.00 <-- =B3+B14