Blog

BattPower Inc is exploring an opportunity to mine for Cobalt for use in electric vehicle batteries. The price of the land is $40 million today but is fluctuating with a volatility of 20%. The land owners will allow BattPower to purchase the land today but sell it back to them if explorations give negative results in 4 years, at a price of $35 million. But for this Battpower needs to pay them additional $3 million. Help BattPower decide whether to purchase the land with the option to sell it back. Use Black Scholes model to price the relevant option. What is the correct price of the option? The interest rate is 2%. a. Correct price of the option is $2.66 million. Do not accept b. Correct price of the option is $10.36 million. Accept the contract c. Correct price of the option is $3.001 million. Accept the contract d. Correct price of the option is $11.33 million. Do not accept

A stock is trading at $250 with a volatility of 0.40. Create a 12 step CRR tree for a 1 year period. The rate for the time step is 6% and is moving up and down by 0.03 for every time step with a probability of 0.5. The implied yield curve is the actual yield curve.  Use the CRR tree and change numeraire to a 1-year zero coupon bond. (Thus the tree now reflects the futures prices of the stock with expiration at the 1-year point.) Change probabilities to convert this tree into a martingale. The tree is now ready to price any derivative. Find the price of a derivative that pays Max(S_T, 410) at expiration in 1 year. Now take the path DUDUDUDUDUDU. A market maker who has sold the derivative maintains delta units of the stock futures at all times. Check that there is no profit/loss for the market maker at the expiration time. Upload Python Code.

Stocks S1 and S2 follow a coupled SDE as shown below. S1 is at $200 and S2 is at $210 currently. (dS1)/S1=0.04dt+0.10 dB_1+0.3dB_2 (dS2)/S2=0.05dt+0.20 dB_1+0.4dB_2 The correlation between the two uncertainties is 0.2. Risk free rate is 0.03. Estimate the probability of the following event occuring within 1 year: S1 crosses above S2 and then falls back below S2 at any point afterwards. Run simulations using the expected rates on 0.04 and 0.05, not the risk free rate. Each month has 30 days. Use daily simulations and 20,000 trials. Choose the closest answer choice below. Make sure to run the simulations with many different seeds to be certain.

What is the value, to humankind, of biodiversity?

For most Americans, factory farms and feedlots are their source for the food products shown in the figure. All of the following are negative impacts from factory farms and feedlots EXCEPT ________.

The Industrial Revolution has led to an increased reliance on fossil fuels to

Which of the following is accurate about bottled water?

Read the following scenario and answer the questions below.Early People and Agricultural BeginningsLong ago, two sisters were talking as they returned from their morning trip to collect mushrooms, seeds, berries, and green leaves for the day’s meals. The younger woman was watching the progress of a small rabbit as it hopped across the path and toward the clan’s trash midden (refuse heap), where broken tools (made of bone, stone, or shell) were tossed and discarded food was thrown. She noticed the rabbit stop and begin nibbling on the many new, green shoots sprouting across one side of the midden. She walked over to take a closer look and saw that some of last year’s discarded dried fruits were growing. Surprised and interested, she called her sister over to discuss this find.Twenty years have passed since the young woman first noticed seeds sprouting in the midden. Which of the following could now be TRUE?

The concept of credit risk refers to the risk that a party that owes money will not pay. Which of the following additional statements does it encompass?

Consider a bank with two independent loans, X and Y. Loan X is for $100,000 and has a probability of default of 4%. If default occurs, Loan X will lose 80% of the amount due. Loan Y is for $250,000 and has a probability of default of 7%. If default occurs, Loan Y will lose 70% of the amount due. Which of the following is the expected loss?