- This topic has 6 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
How do find the unexpired basis over here?
and why do y divide by 4 according to marking scheme.
Is there a standard formula to calculate it?(Collar Opions Same question)
I just wanted to know how do u decide which strike price to use for put(cap) and floor (call)
Marking scheme says like this?
Using a collar
Buy December call at 97·00 for 0·032 and sell December put at 96·50 for 0·123. Net premium received = 0·091
SInce its investing we have to sell put and buy call, however when u sell, u sell at higher price then buy at lower price this is wat my logic says?
Can u clarifyHow come it be a loss for the collar? can u explain pls thnks
Loss on exercise
(76 x €25 x 50) (95,000)From 1 Sep now) to 31 Dec (the end of the future) is 4 months.
The date of the transaction is 30 Nov, and so there is 1 month unexpired out of 4.I do spend a lot of time in my lectures on interest rate futures and options explaining this.
Because the are investing, they will buy a call option which will then fix the minimum interest rate and will sell a put option which will then fix a maximum interest rate.
If interest rates fall below the minimum rate we will exercise the call option and make a profit, if interest rates go above the maximum rate then the buyer of the put option will exercise so we make a loss.
In practice there are several ‘pairs’ of strike prices that could be chosen – each with different max and min’s and different net premiums. In this question there are only two strike prices available.
I suggest that you read my note on collars – it is only short and should make sense of it all 🙂
https://opentuition.com/articles/p4/interest-rate-collars/I just have a small doubt, as per marking scheme oki?
If interest rates increase to 4·1%Buy call Sell put
Exercise price 97·00 96·50 (3.5%)
Futures price 95·74 95·74 4.26%
Exercise option? No YesSince its receipt our main is that interest rates should go down, so we fix at 3% but actuall is more than that so we dont exercise oki, I understood this
the buyer of put fix at 3.5 but actual becomes 4.26 so he doesnt have to exercise he can enjoy at 4.26 so he wil get more interest receipts ryt?
Am I wrong? plus since the actual is 4.26 we fix at 3.5 so we are loosing out so its a loss???
- You must be logged in to reply to this topic.