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Finance (Derivative Securities) - Essay Example

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Finance (Derivative Securities)

Industry analysis means to analyze the whole industry in which different companies relating to a single industry would be dominated, analyzed and count. Though there are number of industries currently found in the entire world and every industry has its own recognition and importance in a broad nutshell. Among number of things that come under the ambit of finance, the name of derivatives is one of them. There are different things that stride under the ambit of derivatives, like SWAP, options and forward contracts (You-lan Zhu 2004). The main perspective of this assignment is to analyze different options accordingly. Two of the questions mentioned in the case study are all about Plain Vanilla Swaps and there are two different options which have been taken into consideration for the same in total. Ans-1) European Options Option-1 K1 = 1.00 Option-2 K2 = 0.75 Option-3 K3 = 0.15 An option that can only be exercised at the end of its life, at its maturity is called European Option. European options tend to sometimes trade at a discount to its comparable American option. This is because American options allow investors more opportunities to exercise the contract. From the analysis, it is clear that the price of Option 1 is comparatively higher than that of K2 and K3 in total. An investor who buys the options on the price K1 would get loss when it moves to a place of K2 and K3 but when it is Short sell on the level of K1 then profit could be gain accordingly. The payoffs of all the options are showing that the investor would be found accordingly. Ans-2) Portfolio Buy or Sell? Amount Option-1 Sell 1$ Option-2 Buy 0.75 Option-3 Buy 0.15 It is possible to earn profit on the options accordingly. If the option-3 could be buying from a market and then sell it in the market where option 1 is trading then the chance of earning would be on a higher place. This particular strategy would be quite authentic and perfect from the standpoint of this analysis and it could be given in the same figure. References You-lan Zhu, Xiaonan Wu, I-Liang Chern. Derivative Securities and Difference Methods. Taipei: Springer, ...Show more


Introduction Accounting and finance always define somewhat different things in total because the applicability of the same could not be matched with any other thing (Beasley, M et al. 2009). Accounting is the name of recording and interpreting the data from different standpoints and there are numerous things that come under the ambit of the same…
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Finance (Derivative Securities) essay example
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