1- Consider the following:
Consider a 6-month futures contract on brent crude oil. Assume that it
costs 3% of the price of brent crude oil to store a barrel of oil, and
the payment is made at the end of the 6 months. If the spot price is $20
and the risk-free rate is 2%, then what is the value of a 6-month crude
oil futures contract?
(b) The spot price of an ounce of silver is
$350, and the risk-free rate is 1.5%. If the cost of storage is 2.5% of
the purchase price, and the lease rate of silver is 0.5%, what is the
value of a 3-month futures contract?
2- Consider the following:
The most recent estimate of the daily volatility of an asset is 1.5%,
and the price of the asset at the close of trade yesterday was £30. The
parameter, ?, in the EWMA model is 0.94. Suppose that the price of the
asset at the close of trading today is £30.50. How will this cause the
volatility to be updated by the EWMA model?
3- Assume that
the FTSE 100 at close of trading yesterday was 6,200, and the daily
volatility was estimated as 1% per day at that time. The parameters in a
GARCH (1,1) model are ?=0.000002, a=0.06, and ß=0.92. If the level of
the index at close of trading today is 6,220, what is the new volatility
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