describe the delta hedging and the gamma trading strategies (delta and gamma being based on the Black and Scholes model) please analyse how they can be altered if you used instead of the Black and Scholes model, the sticky delta and the sticky strike models.
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describe the delta hedging and the gamma trading strategies (delta and gamma being based on
the Black and Scholes model) please analyse how they can be altered if you used instead of the Black
and Scholes model, the sticky delta and the sticky strike models.
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Solved in 2 steps
- Assume you want to test the Efficient Market Hypothesis (EMH) by comparing alternative trading rules to a buy-and-hold policy. Discuss the three common mistakes that can bias the results against the EMH.After describing the delta hedging and the gamma trading strategies (delta and gamma being based onthe Black and Scholes model) please analyse how they can be altered if you used instead of the Blackand Scholes model, the sticky delta and the sticky strike models. Then describe how the sticky delta andthe sticky strike impact the portfolio theta, vega and P&L when the market decrease or increase?Which of the following statements is false? A. Historical VaR simulation involves using past data as a guide to what will happen in the future. B. Illiquidity is observed when there is a large difference between the offered sale price and the bid price. C. Yield spared is reflected in the size of the bid-ask spreads. D. The stressed VaR is based on how market variables have moved during a particularly adverse time period.
- After describing the main hypothesis made in the black and Scholes model explain the reasons why the volatility smile (or skew) is showing up in the options markets? Describe three alternative models to the Black and Scholes model (except the sticky delta and the sticky strike methods) and explain/justify how they cope with the phenomenon of volatility skew.Carefully explain the Arbitrage Pricing Theory (APT). What is the main assumption the APT is built on? (b) With regard to market efficiency, what is meant by the term "anomaly"? Give two examples of market anomalies and explain why each is considered as an anomaly.Define Weak, Semi-Strong and Strong forms of the Efficient Market Hypothesis (EMH). a. How would you construct a test of the Weak form of the EMH? b. What have researchers found when testing the Weak form of the EMH? c. Outline how you would conduct an event study. What efficient market hypothesis are you trying to test? d. Give an example where researchers have used an event study and what did they find? Was it consistent with the EMH?
- Define Weak, Semi-Strong and Strong forms of the Efficient Market Hypothesis (EMH). Please answer C and D!!!!! a. How would you construct a test of the Weak form of the EMH? b. What have researchers found when testing the Weak form of the EMH? c. Outline how you would conduct an event study. What efficient market hypothesis are you trying to test? d. Give an example where researchers have used an event study and what did they find? Was it consistent with the EMH?Examine the weak, semi strong and the strong form if market efficiency, examine the various ways to test the different forms of market efficiency?Which of the following statements is/are correct? Group of answer choices If a market is weak form efficient it is also semi- and strong form efficient If a market is strong form efficient it is also semi- and weak form efficient If a market is semi-strong efficient it is also strong form efficient If a market is strong form efficient it is also semi-strong but not weak form efficient
- “Investors cannot beat the market”. Elaborate on this statement and apply the efficiency continuum in your explaination.Rigorously define the rather vague idea of ‘beating the market’ with reference to the Efficient Markets Hypothesis and the standard techniques used to try to ‘beat the market’.If the weakest form of market efficiency holds, then security prices reflect all information found in past prices and volume. Thus, traditional "technical analysis" will not work. Group of answer choices True False