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Ceiling evaluation

This topic has 2 replies, 2 voices, and was last updated 4 years ago by John Moffat.

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February 14, 2020 at 8:06 am #561788
unfazed
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Morning Mr Moffat,
When we are asked to evaluate options as a risk mgmt strategy,
Often times we’re required to evaluate a ceiling,
My question is as opposed to evaluating all the strike prices (time pressure), can I get away with using the ceiling at LIBOR or closest to LIBOR? Provided I provide a justification that this is logical
Regards
February 15, 2020 at 5:44 pm #561955
unfazed
Participant
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As in,
Can I get away with using only one ceiling?
As opposed to examiners method of comparing every ceiling
February 16, 2020 at 10:58 am #561991
John Moffat
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Ideally you would calculate for all the exercise prices. However most of the marks are for proving that you know how options work and so if you are short of time and only calculate for one exercise price you will probably only lose one mark at most.
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