기말고사 및 해설 수정본

1. 출제 오류에 따라 복수 정답 인정
Which of the following is a difference between buying a put option and selling a call
option?

A) Selling a put option limits potential losses and selling a call option also limits
potential losses.

B) Buying a put option requires the buyer to deliver the underlying asset, while selling
a call option does not require the seller to deliver the underlying asset.
C) Buying a put option gives the buyer the right to sell the underlying asset, while
selling a call option gives the seller the right to sell the underlying asset.
D) Selling a put option is advantageous when the underlying asset price rises, while
selling a call option is advantageous when the underlying asset price falls.
E) None of them
Answer: D), E)

→옳은 설명은 D)이나, 질문에서는 buying a put과 selling a call의 차이를 묻고 있는 반면

는 selling a put과 selling a call의 차이를 서술하는 문장임. 따라서 E) None of them도
D)
복수정답으로 인정.

2.
Which one of the following is equivalent to the position of a portfolio that includes a
short position in a forward contract and a long position in a call option? It is assumed
that the maturity, underlying asset, and strike price are all the same.

A) Long position in a call option

B) Long position in a put option
C) Long position in a forward contract

기말고사 및 해설 수정본 1
 D) Risk-free bond
E) None of them
Answer: B)

3.
Suppose that there are no storage costs for crude oil, and the interest rate for
borrowing or lending is always 5% per annum. How could you make money if the
March and September futures contracts for a particular year trade at $38 and $39,
respectively?

A) Borrow funds at a risk-free interest rate & go long on March futures & go short on
September futures
B) Borrow funds at a risk-free interest rate & go short on March futures & go long on
September futures
C) Invest funds at a risk-free interest rate & go long on March futures & go short on
September futures
D) Invest funds at a risk-free interest rate & go short on March futures & go long on
September futures
E) There is no arbitrage opportunity.
Answer: A)

Solution
No-arbitrage price for September futures is 38 * exp(5% * 6/12) = 38.962
September price is overvalued in market.
So buy the March futures and sell the September futures.
In March, borrow $38 and buy the oil from futures long position.
In December, sell the oil at $39 and pay back $38.962.

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 4.

A trader buys three August futures contracts on crude oil. Each contract is for the
delivery of 1,000 barrels. The current futures price is $70 per barrel, the initial margin
is $4,000 per contract, and the maintenance margin is $3,000 per contract. Under
what circumstances could $3,000 be withdrawn from the margin account?

A) When the futures price increases to $71 per barrel

B) When the futures price decreases to $69 per barrel
C) When the trader sells one of the futures contracts
D) When the trader buys three more futures contracts
E) None of them
Answer: A)

Solution
To withdraw $3000, you must have $3000 in margin in excess of your initial margin.
Since you entered 3 contracts, your position is for 3000 barrels. For every $1
change, your margin changes by $3000. Since you're long, it's in your favor for the
price to go up. Therefore, you can withdraw if it goes up by $1.

5.
The company wants to hedge its exposure to new-metal futures price fluctuations.
The price fluctuation of this new-metal has a correlation of 0.7 with a ordinary metal
futures price fluctuations. The company incurs a loss of $5,000,000 if the price per
barrel of this new-metal increases by $1. The standard deviation of the new-metal
futures price change is 60% greater than the standard deviation of ordinary metal
futures price changes. Each futures contract corresponds to 30,000 barrels of
ordinary metals. How much futures contract should be contracted? (Round to the
nearest integer in the final calculation result)

A) Long 75 contracts
B) Short 75 contracts

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 C) Long 187 contracts

D) Short 187 contracts

Answer: C)

Solution

Standard deviation of new metal / standard deviation of original metal = 1.6

Optimal hedge ratio is 1.6 * 0.7 = 1.12

You lose $5,000,000 on a $1 increase, which means you are long 5,000,000 barrels
of the future.
This means you need to go long futures.

Since there are 30,000 barrels per futures contract, the optimal number of contracts
= 1.12 * 5,000,000 / 30,000 = 186.667, or 187

6.

When the correlation coefficient between the futures price and the hedged asset
price is 0, minimum variance hedge provides a perfect hedge effect.

T/F
Answer: F

Solution

Variance of short hedge position:

Var(ΔΠ) = σ 2S + h2 σ 2F − 2hρσ S σ F
​ ​ ​ ​

When the correlation coefficient is zero, the minimum variance hedge ratio is equal to

σS
h∗ = ρ =0
​

σF ​

It's best not to hedge at all. In other words, there is no hedge at all.

기말고사 및 해설 수정본 4
 Var(ΔΠ) = σ 2S ​

7.
The cash prices of 6-month, 1-year and 1.5-year Treasury bills that do not pay
coupons are $96, $94 and $90 respectively. A 2-year maturity instrument that pays a
$5 coupon every six months currently sells for $92.00. The principal of all bonds is
$100 and all interest rates are calculated using continuous compounding. Calculate
the 2-year zero rate. Round to three decimal places.

A) 0.149

B) 0.135
C) 0.117

D) 0.083
E) Not enough information

Answer: A)

Solution
Zero rate of each maturity

If the two-year zero rate is 0.148626, the bond price is 92.

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 8.
A 4-year 6% annually coupon bond currently sells for $92. A 4-year 3% coupon bond
currently sells for $84. The principal is $100 for both and both have same coupon
payment frequency. What is the 4-year zero rate with continuously compounding?

A) 5.16%

B) 5.69%
C) 6.86%

D) 7.13%
E) Not enough information

Answer: C)

Solution
If you short one 6% coupon bond and long two 3% coupon bonds,

the coupons cancel each other out, leaving you with a principal of 200 - 100 = 100
after 4 years.
The current cost to get 100 in 4 years is 2*84 - 92 = 76.

76 ∗ er∗4 = 100↔ r = 0.0686

9. 출제 오류에 따라 전원 정답 인정
Suppose that the risk-free interest rate is 4.2% per annum with continuous
compounding and that the dividend yield on a stock index is 2.9% per annum. The
index is standing at 380, and the futures price for a contract deliverable in 7 months
is 383. How to engage in arbitrage trading in this situation?

A) Long position in futures, short position in spot market, borrowing 383

B) Long position in futures, short position in spot market, investing 383

기말고사 및 해설 수정본 6
 C) Short position in futures, long position in spot market, borrowing 383
D) Short position in futures, long position in spot market, investing 383
E) There is no arbitrage opportunity.

전부 정답
Answer:
→ 선물가격이 저평가되어 있으므로, 선물 롱, 현물 공매도, 그리고 공매도로 얻은 380을 무
위험 이자율로 투자해야 함. 하지만 모든 선지에서 383을 투자하거나 차입한다고 잘못 표기
되어 어느 것도 옳은 선지가 없으므로, 전원 정답 인정.
Solution
The no-arbitrage price of index futures is:
7
380 ∗ e 12 (0.042−0.029) = 382.8926
​

So market futures price is too low.

Short the spot, invest the cash 380 received, and go long the futures.

10.

A 9-month long forward contract on a non-dividend-paying stock is entered into when

the stock price is $78 and the risk-free rate of interest is 6.1% per annum with
continuous compounding. 4 months later, the price of the stock is $75 and the risk-
free interest rate is 6.5%. What is the value of the forward contract? Round to three
decimal places.

A) -4.477
B) -4.470
C) -4.602

D) The value of a forward contract without daily settlement is always zero.

E) cannot be calcuated.
Answer: B)

Solution

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 The forward price at the time the contract is entered into
78 ∗ e0.061∗9/12 = 81.65139
The forward price after 4 months

75 ∗ e0.065∗5/12 = 77.05901
The value of the long forward contract

e−0.065∗5/12 ∗ (77.05901 − 81.65139) = −4.470

11.

There are 7 months left until the maturity of a currency swap. The parties of the swap
exchange 4% interest on £10,000,000 with 3% interest on $15,000,000 annually. The
pound's yield curve is horizontal at 2.5%, while the dollar's yield curve is horizontal at
2.8% (compounded annually). The current exchange rate is £1 = $1.32. Express the
value of the currency swap in dollars in terms of the party paying in dollars. Round to
three decimal places.

A) $1,671,433.325
B) -$1,671,433.325
C) $4,951,840.321

D) -$4,951,840.321
E) No answer
Answer: B)

Solution
7개월 후에 발생하는 현금흐름은
파운드화
10400000
1.0257/12
​ = 10, 251, 271.864
달러화의 경우
15450000
1.0287/12
​
= 15, 203, 112.185
현금흐름을 달러화 기준으로 평가하기 위하여, 현재환율로 바꾸면

기말고사 및 해설 수정본 8
 파운드화 현금흐름의 달러화 현재가치는
10, 251, 271.864 ∗ 1.32 = 13, 531, 678.860

따라서 달러화 지급자의 스왑 가치는

13, 531, 678.860 − 15, 203, 112.185 = −1, 671, 433.325

12.

The one-year LIBOR rates is 3%. The 2-year swap rate for a swap with annual
payments is 3.2%. OIS zero rates for maturities of 1- and 2-year are 1.7% and 2.2%,
respectively. What is the LIBOR forward rate for the 1- to 2- year period? All rates are
annually compounded. Round to three decimal places.

A) 3.851%
B) 3.673%

C) 3.405%
D) 3.198%
E) No answer
Answer: C)

Solution
2년 만기 스왑레이트가 3.2%라는 것은, 리보금리와 3.2% 고정금리가 교환되는 2년 만기 스
왑의 가치가 0이 된다는 것이다.
즉, 2번째 연도말에 적용되는 선도금리가 R이면 다음 식이 성립한다.
0.03−0.032 R−0.032
1.017
​ + 1.0222
​ = 0
따라서, 1년-2년에 적용되는 선도금리는 3.405%

기말고사 및 해설 수정본 9
 13.
The stock price is currently $130. Over each of the next two 2-month periods, it is
expected to go up by 3% or down by 4%. The risk-free interest rate is 1.5% per
annum with continuous compounding. What is the value of a 4-month European put
option with a strike price of $120? Use a binomial tree model, and round the result to
three decimal places.

A) $6.645
B) $2.602

C) $1.019
D) $0.029
E) $0.0
Answer: D)

Solution

14.

The stock price is currently $100. It is known that at the end of 3 months, it will be
either $110 or $85. The risk-free interest rate is 5% per annum with continuous
compounding. Suppose S is the stock price at the end of 3 months. What is the

기말고사 및 해설 수정본 10
 current value of the derivative that pays “natural logarithm of S” at maturity? Use a
binomial tree model, and round the result to three decimal places.

A) $4.442
B) $4.553
C) $4.700

D) $4.861
E) None of the above
Answer: B)

Solution
Since u=1.1 and d=0.85, p = 0.650314
If the stock price is 110, the payoff is 4.70048

If the stock price is 85, the payoff is 4.442651

The value of the derivative is
(4.70048 * 0.650314 + 4.442651 * (1 - 0.650314)) * exp(-0.05 * 3/12) = 4.553

15.
The price of a non-dividend-paying stock is $70 and the price of a 1-year European
put option on the stock with a strike price of K is $4. The price of risk-free bond that
gives K in 1 year is 65. What is the price of a 1-year European call?

A) $10

B) $9
C) $8
D) $7

E) Not enough information to derive the price

Answer: B)

기말고사 및 해설 수정본 11
 Solution
Put-call parity
C = P + S − Ke−rT 
Ke−rT is the value of the risk-free bond paying K , so its 65.
∴ C = 9

16.
Let's say short selling is prohibited, but you want to do it. What kind of position can
you create using the options market?

A) Buy a put with a strike price equal to the current stock price and sell a bond that
pays the strike price at maturity.
B) Buy a call with a strike price equal to the current stock price and sell a bond that
pays the strike price at maturity.
C) Buy a put with a strike price equal to the current stock price and sell a call with the
same strike price.
D) Buy a call with a strike price equal to the current stock price and sell a put with the
same strike price.

E) Not possible
Answer: C)

Solution
From the put-call parity,

Ke−rT − S0 = P − C 
​

At the maturity of the options, the payoff from the left-hand side:
K − ST  ​

If K = S0 , the payoff = S0
​ ​ − ST , which is equal to the payoff from short selling
​

position.

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 To achieve this result, we need to buy a put and sell a call (Look at the right-hand
side).

17.

The Black-Scholes-Merton model assumes that the stock price at the maturity follows
a normal distribution and the return to the maturity follows a log-normal distribution.

T/F
Answer: False

Solution
BSM assumes that the stock price is log-normal and the return is normal.

18. 출제 오류로 인한 전원 정답 인정
Suppose that observations on a stock price (in dollars) at the end of each of 15
consecutive weeks are as follows: 100, 103, 105, 101, 102, 98, 95, 98, 99, 101, 104,
100, 97, 94, 92. Estimate the annual volatility. Assume that 1 year is 52 weeks and
round your result to three decimal places.

A) 0.032

B) 0.152
C) 0.232

D) 0.335

E) Not enough information

전원 정답
Answer:

→ 올바른 계산 결과는 0.211이나 원래 선지에는 정답이 없음. E) Not enough information

를 “정답없음”으로 해석하기는 어려우므로, 전원 정답 인정

기말고사 및 해설 수정본 13
 Solution

19.

Calculate the delta of 1-year European put option on a non-dividend-paying stock

with strike price of 0 when the risk-free interest rate is 5% per annum and the stock
price volatility is 30% per annum. Round your calculation to three places.

A) 0.624

B) 0.537
C) 0.488

D) 0.317
E) None of the above.

Answer: E)

Solution

행사가격이 0인 풋옵션은 절대 행사되지 않는다. 따라서 항상 가치가 0이다.

가치가 항상 0이므로, 기초자산 가격에 대해 미분하면 델타는 0이다.

기말고사 및 해설 수정본 14
 20.

Currently, the delta of the portfolio is -700, the gamma is 1000 and the vega is 1500.
Option X has delta of 0.5, gamma of 1.2, and vega of 1.5. Option Y has delta of -0.7,
gamma of 1.0, and vega of 2.0. What position is needed to make delta, gamma, and
vega neutral at the same time? Suppose you can only trade options in integer units.

A) Sell 556 X, sell 333 Y, buy 745 underlying assets

B) Sell 556 X, sell 333 Y, sell 745 underlying assets

C) Sell 763 X, sell 458 Y, buy 610 underlying assets

D) Sell 763 X, sell 458 Y, sell 610 underlying assets

Answer: A)

Solution

To make it gamma-neutral
1.2x + 1.0y = −1000
To make it vega-neutral
1.5x + 2.0y = −1500
So,

x = −555.556, y = −333.333
Since we only trade in integer units,

short X by 556 positions and short Y by 333 positions.

Then the delta changes to

−700 − 556 ∗ 0.5 − 333 ∗ (−0.7) = −744.9

To make it delta-neutral, we buy 745 units of the underlying.

21.

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 Which of the following statements about implied volatility smile is incorrect?

A) Different implied volatilities should be applied to two options with different exercise
prices.

B) If the implied volatility of a call option is lower than the implied volatility of a put
option under the same conditions, the call option is undervalued.
C) If the implied volatilities of call and put options under the same conditions are
different, the put-call parity doesn’t hold.

D) The volatility smile phenomenon conflicts with the assumptions of the Black-
Scholes model.

Answer: C)

Solution

Put-call parity is always established in the market by the no-arbitrage argument.

No assumptions are required.

22.
There are call and put options with the same conditions. The implied volatility
calculated from the call option is higher than that of the put option. What position
should be taken to arbitrage in this situation?

A) Long Call, Short Put, Short Underlying, Long Bond

B) Long Call, Short Put, Long Underlying, Long Bond

C) Short Call, Long Put, Short Underlying, Short Bond

D) Short Call, Long Put, Long Underlying, Short Bond

E) Not possible

Answer: D)

Solution

기말고사 및 해설 수정본 16
 If a call has a higher implied volatility than a put, it means the call is overvalued.

From the put-call parity,

C = P − Ke−rT + S 
So, to do arbitrage,

short call, long put, long underlying, and borrow cash for this trading.

23.

The 95% VaR was quoted as $10,000,000, with $20,000,000 as the ES (Expected
Shortfall). What does this mean?

A) The expected loss in this portfolio is $20,000,000

B) The expected loss in the event of a loss above $10,000,000 is $20,000,000

C) There is a 95% probability of a loss of $10,000,000 or less and a 5% probability of
a loss of $20,000,000 or more

D) There is a 5% probability that losses between $10,000,000 and $20,000,000 will

occur.

Answer: B)

24.

An investor has a portfolio worth $10,000,000. What is the 5-day 99% VaR if the
probability distribution of annualized stock returns is normally distributed with a mean
of 0 and a standard deviation of 20%? Assume that a year is 252 trading days and
that P(Z<2.326) = 99% for a random variable Z that follows a standard normal
distribution.

A) $651,280
B) $475,610

C) $280,000

기말고사 및 해설 수정본 17
 D) $135,685

E) There is no answer
Answer: A)

Solution

The daily volatility of the stock return is 20% * 5/252= 0.028

​

The probability distribution of the 5-day stock return R is N(0, 0.028^2)

We have to find the X such that P(R < X) = 99%

Note that R = 0.028 * Z, so

P(R < X) = 99% ↔ P(0.028 * Z < 0.028 * 2.326) = 99%

Thus, X = 0.028 * 2.326 = 0.065128

Therefore, 99% VaR = 10,000,000 * 0.065128 = 651,280

25.
An European-style floating lookback put option on a stock index has a maturity of 3
months. The current level of the index is 2000, the risk-free rate is 4% per annum,
the dividend yield on the index is 1% per annum, and the volatility of the index is
20%. Use DerivaGem to value the option. Round your calculation to three decimal
places.

A) 146.376

B) 156.313

C) 161.282
D) 171.220

E) cannot be determined

Answer: B)

Solution

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 26.

The stock price is $80, the strike price is $85, the risk-free rate is 5% per annum, the
volatility is 25%, and the time to maturity is 6-month. Use DerivaGem to calculate the
value of a knock-out call option with the barrier at $90. Round your result to three
decimal places.

A) 0.000
B) 0.036

C) 4.366

D) 4.402
E) Not enough information

Answer: B)

Solution

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기말고사 및 해설 수정본 20