MC Time Value Pt. 2 Flashcards
(7 cards)
1
Q
Spot Rate to Forward Rates
A
2
Q
Cash Flow additivity is also the ______.
A
Principle of no arbitrage
3
Q
What are three examples of application of principle of no arbitrage?
A
- Forward Interest Rate
- Forward currency exchange
- Option pricing
4
Q
What is a forward currency exchange rate?
A
Rates agreed on today, used at a future date.
5
Q
For options, what is the hedge ratio?
A
The hedge ratio is the number of shares to hedge one option.
6
Q
What is the hedge ratio formula?
A
7
Q
Speak to application of hedge ratio to option hedging.
A
