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Structured Products
Spring 2005
Assignment 7
說明一: 除了"個別學號"分配的部分外，下述 A.B 兩部分亦是assignment的其中一部分，
請大家留意!!
說明二：Assignment 7 已經上傳，請見pdf檔，以下即pdf檔之內容，同學亦可直接去
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Do problem 1, if the last two digits of your Student ID number is less than 20.
Do problem 2, if the last two digits of your ID number is between 20 and 40
Do problem 3, if the last two digits of your ID number is greater than 40
(You are welcomed to try other two problems not assigned to you).
A. Be prepared to discuss your results in class.
(you can use Powerpoint for your discussion)
B. Don’t forget to bring your one -page write-up on the Derman’s article
you read from the previous assignment.
You may be asked to talk about it in class or turn it in.
1. For Product 09（大華五福齊發）， given the following information:
a. Stock prices of all five stocks = 100%.
b. Volatilities of all five stocks = 0.5
c. Risk free rate = 2%
d. Correlation coefficients for all pairs of stocks = 0.1
(1) Calculate the theoretical value of this product.
(2) What should be the hedging position for this product
(this means you need to calculate the delta ratio for each of the
five stocks)
(3) Recalculate the product value by changing the correlation coefficient
from 0.1 to 0.2, 0.3, … … 0.9 (this means you need to calculate a
total of nine values for each of the correlation input)
2. For Product 08 (寶來季季得利)，given the following information:
a. Stock price = 100%.
b. Stock volatility = 0.4
c. Risk free rate =1%
Calculate the theoretical value of this product.
3. Given the following product:
7-yr maturity, pays coupon every 6 months
The payoff of this product is:
LIBOR if LIBOR < 1.2%
4% if 1.2% <= LIBOR <= 4%
6% - LIBOR if LIBOR > 4%
Decompose this product into a coupon bond and a series of options
(i.e., What are the specifications of this bond (coupon rate, maturity)
and the options (call/put/digital/… , exercise prices, buy or sell,
maturities,… ..)
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