Derivatives & AI

Question 1

Price of Fixed-Floating Pmt IR Swap

Answer 1

• Is Fixed Rt Pmt on the swap

- Is set at initiation and constant

Question 2

Purpose of using Replication

Answer 2

To exploit pricing differentials

Question 3

Dividends Pmts on UL effect on (Euro) Option values

Answer 3

Div pmts reduce price of UL

• Decreases call values
• Increases put values

Question 4

Long vs. Short: Who can default in Option Contract

Answer 4

• Only the short bc its the only one with an obligation
  
  • Long: has right to exercise, but can let expire
  • Short: has to honor the long’s exercise and deliver

Question 5

Variable or Constant: Price and Value of Fwd

Answer 5

Price: Constant, set at initiation
Value: Variable, varies with price of UL

Question 6

Zero or Negative: Value of OTM European Option @ expiration

Answer 6

• OTM so it is worthless and value = 0

- Value is not negative (as intuition suggests)

Question 7

2 Types of Value for an option

Answer 7

1. Exercise value (depends on moneyness)
2. Time value (depends on T until expiration)
   - TV = 0 @ expiration, only EV left

Question 8

VaR Definition

Answer 8

Minimum amt E(Loss) over given time period @ given probability level

Question 9

Longs/Shorts: Conservative HF valuation of ULs

Answer 9

Longs: Value at bids
Shorts: Value at asks

Question 10

Early vs. Seed Stage VC Investing

Answer 10

Seed: Companies only in idea phase
Early: Companies moving toward operation
-but manufacturing and sales have yet to occur

Question 11

Trade Sale

Answer 11

PE sale to Strategic Buyer