《Exam FRM July 2016》.doc

Faculty of Economics and Business Administration EXAM Course : Financial Risk Management Code : 1077 M Date : 8 July, 2009 Time : 13.00 – 16.00 Location : Sporthal De Heeg This exam consists of: 13 Pages (Front page included) 8 Questions You are allowed to make use of: A non-programmable calculator A two-sided signed-off formula sheet Norm: A total of 20 points can be received. The maximum points per question are provided within parentheses at the header of the question. Publication of the results: within 15 workdays Procedure for objections: According to University Policy. Particulars: Both calculation of the result and the final answer are important. Please provide both. In case you miss information, clearly state what information you are missing and state what assumption you make to answer the question. Be to-the-point. Inclusion of irrelevant statements will be treated as a (partially) wrong answer. All answers should be written on the exam itself. Use both sides of paper if necessary. Write clearly. Text that is considered difficult to read may be treated as a (partially) wrong answer. Question 1 (3 points) Consider a trader who sells 100,000 European call options on a non-dividend paying stock, when: (1) the stock price is $49, (2) the strike price is $50, (3) the risk free rate is 5%, (4) the stock price volatility is 20% per annum, (5) the time to option maturity is 20 weeks. Furthermore, suppose that the amount received for the options is $300,000 and that the trader has no other positions dependent on the stock Determine the value of the option Determine the delta of the option What position in stocks should the trader take to make the portfolio delta neutral After 1 week the stock price decreases to $48.12. What is the delta of the portfolio of options after the change Take the ‘old’ hedge position as determined under (c) as point-of-departure and determine how many stocks should be bought or sold to make the portfolio delta ne