<t>Hi All,Are there any papers talking about fat tailed exchange rate returns corresponding with underlying fat tailed macro economic fundamentals?I am trying to analyse how EVT can explain the non-normality of exchange rate if the fundamentals are fat-tailed.Any help in this direction would be high...

<t>Hi AllHow does one proceed on thisA stock price follows the geometric brownian motion: dSt =mu Stdt+sigmaStdWt. Let r be the continously compounded risk-free rate and D(t; St) = St[ln St +(r+sigma^2/2)(T-t)]Prove that D(t; St) is the price at time t of a derivative security with a maturity payoff...

Hi AllPlease help in shedding some light. If the utility functions are differentiable it seems easy to prove it. If not, it seems so complicated. RegsSreehari

Hi All,The E(u(R))=E(R-(gamma/2)R^2=E(R)+(gamma/2)E(R)^2-(gamma/2)V(R). Prove that E(u(R)) for R is N(mu, sigma^2) is increasing in mu and decreasing in sigma^2.Now if we dont consider all utility functions to be differentiable, how do we prove this.Thanks and RegardsSreehari

Hi AllDoes anybody have an article or ny notes that can help me on this topic. I want to prove Riesz theorem on a finite probability space.RegardsSreehari

Hi DaveBrilliant. Thanks a lot. Really Appreciate it.RegardsDinu

<t>Hi AllSorry to disturb you again. This is what I have done for this question. Please do tell me if its correct.Now the underlying assumption is that the portoflio can imitate the participation forward if one assumes that he is long one call and short half a put and the notional underlying the put...

<t>Hi Bearish and others,Thanks for all the helpAssuming the risk free interest rate r (continuously compounded), build a portofolio that replicates the participation forward contract using the underlying stock S, standard forward contracts and European options. Determine FP and compare to the stand...

Hi GuysThanks a lot. So more or less we assume what bearish has spoken about it (though there still are confusions).When one equates the k to the Fp with the BS put and call equations that would essentially make it arbitrage free at t=0. Hope I am at least correct on this.RegardsDinu

Hi All,Thanks a lot for such a helping hand, though am still confused.To solve it in excel are we going to put in just the arbitrary values. I started reading on derivatives a week back and am just coming to terms with the terminologies. Please do help me to cope with that.RegardsSreehari

HiThis is the pay off which is fine. Now how do we create a portfolio that involves options and compare it to the arbitrage free price?RegsSree

<t>Hi AllJust that I am starting on derivatives and all looks arcane to me. Now is it that the portfolio is just long one call and short half a put.I need a combination wherein I would short the asset, long one call and short half a put. Now i was confused about the combination of the forwards and t...

Hi Secret 2,Yes the payoff looks to be positive regardless of the asset priceRegsDinu

<t>Hi All,Can you please help me with this. I have been trying a lot without any luck.A forward contract offers a perfect hedge on the underlying, locking in the price. However, investors may be unhappy with losing the ?upside risk? - i.e. the probability that the market will turn into the direction...