M*****c
发帖数: 3306 | 1 Consider two stocks A and B:
The current values of the stocks are $50 and $70 respectively,
The volatilities of the stocks are 0.4 and 0.6,
The correlation of the relative returns of A and B is 0.8
The continuously compounded short rate of interest is 0.04, compute the
following exotic option:
At t =0.25 year, the holder of the option will receive a payoff equal to
the sum of the values of stocks A and B as quoted at time t=0.25 year minus
a strike price of $120, or zero if the sum of the stock | h*y
发帖数: 1289 | 2 You construct a two-stock portfolio, but volatility of the portfolio should
be
sigma=(w1^2*0.4^2+w2^2*0.6^2+2*w1*w2*0.8*(0.4*0.6))^0.5
where w1 and w2 are the weights of the stock values, which are changing over
time. However, you missed these weights in your program.
You can consider two correlated stock trajectories. You may transform two
independent normal random variables to correlated ones by multiplying
Cholosky factor. Prof. has mentioned this in his lecture. You may check your
notes. | h*y
发帖数: 1289 | 3 Sorry, it should be Cholesky factor. |
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