《Exam FRM June 2016》.doc

Faculty of Economics and Business Administration EXAM Course : Financial Risk Management Code : 1077 M Date : 4 June, 2009 Time : 13.00 – 16.00 Location : Sporthal De Heeg This exam consists of: 15 Pages (Front page included) 10 Questions You are allowed to make use of: A non-programmable calculator A two-sided signed-off formula sheet Norm: A total of 30 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 (2 points) It is July 16. A company has a portfolio of stocks worth $100 million. The beta of the portfolio is 1.2. The company would like to use the CME December futures contract on the SP 500 to change the beta of the portfolio to 0.5 during the period July 16 to November 16. The index is currently 1,000, and each contract is on $250 times the index. What position should the company take? What would be a reason to pursue such a strategy? Answer: Question 2 (2 points) A financial institution has the following portfolio of over-the-counter options on sterling: Type Position Delta of Option Gamma of Option Vega of Option Call -1000 0.50 2.2 1.8 Call -500 0.80 0.6 0.2 Put -2000 -0.40 1.3 0.7 Call -500 0.70 1.8 1.4 A traded option is available with a delta of 0.6, a gamma of 1.5, and a vega of 0.8. (a) What position in the traded option a