FINC 3340 Homework 3

Seungho Baek
Due: Wednesday, Sept. 28, 2016, 03:39 P.M.
For part 2, please make a cover page (name and ID). To submit homeworks electronically, use Blackboard.
DO NOT send me it via email. Please submit your homework in a single PDF file. ONLY a PDF FILE will
be accepted. NO *.docx and *.doc files are not allowed. You have write up with your own words. Do not
copy from others work. In the last page, you have to show all your references for your homework. DO NOT
SIMPLY COPY ANSWERS IN SOLUTION MANUAL. ALTHOUGH YOU REFER TO THE MANUAL,
YOU SHOULD CHANGE TO YOUR OWN WORDS.
Part 1 Reading Assignments.
1. Read Ch2 in John Hulls textbook.
2. Read Ch3 and Ch4 in Hanselman and Littlefield (HL)s book and run all the codes in those chapters.
(a) When to read HLs book, type all the commands in Ch4 and Ch5 onto a script editor and run
Matlab codes.
(b) Save as first name last name HL script3.m and submit it via Blackboard.
3. In the lecture, we have learned that unlike futures contract forward contracts are not standardized but
customized between two parties. Just look at two samples of forward contracts from Bear Sterns Inc.
and Tempus and compare contact specifications between two contracts.
Part 2 Practice Problems
Chapter 2 (Practice Questions) : Q1, Q3, Q4, Q7, Q8, Q11, Q12, Q17, Q23, Q24
Chapter 2 (Further Questions) : Q27, Q30, Q32, Q33
Part 3 MATLAB Practice:
1. In lecture note1( pp. 41 to pp. 42), you learned how you can implement a hedging strategy using a
put option again your initial stock investment. Plot two lines as shown in page 42.1
2. In lecture note2 (pp. 4 to pp. 22) , you studied 2 different futures/forward positions and 8 different
options positions from exercise 1 to exercise 9. Plot all the individual pay off diagrams for each
problems.
Note: For part3, type all the MATLAB commands on to a script editor and save as first
name last name hw3part3.m and submit it via Blackboard.

1 Try

to understand the excel example posted on Blackboard in order to complete this problem.