• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Recent content by John Potter

  1. J

    April 2024 CM2B Q1ii, Q1v

    Hi Alexa, Yes, you can definitely use NORM.S.INV to derive your own (more exact) inverse table values. The Examiners used rounded ones. Part (ii)(b) Unfortunately there is quite a bit of ambiguity in what is meant by TVaR. In this question, the Examiners’ Report states that the TVaR is...
  2. J

    September 2023 Q9

    Yes, the inconsistency is frustrating, I agree. The call and put options are options on the index. I'd say that this is important, because if we're using a B-S framework, we need to therefore assume that the index follows geometric Brownian motion, which makes more sense than just the return...
  3. J

    September 2023 Q9

    https://www.acted.co.uk/forums/index.php?threads/black-scholes-question-9-sept2023-exam.19935/ I think this explains it very well
  4. J

    Black Scholes: Question 9 Sept2023 Exam

    Thank you for this!
  5. J

    Sep 21 CM2 Question 8

    Binomial distributions are for when you have a fixed number of trials (20 working days) where something either happens (trader loses more than $L) or it doesn't. X ~ Bin(20, 0.01). We need P[X>=3] = 1 - P[X=<2] = 1 - 0.99^20 - 20*0.99^19*0.01 - 20C2*.99^18*0.01^2 = 0.001003576
  6. J

    CT8 September 2013 - Q9(iv)

    Differentiate put-call parity twice: c + Ke^-rT = p + S DeltaC + 0 = DeltaP + 1 GammaC = GammaP The portfolio is gamma hedged. The only way this could happen is if the investor is hedging their 100,000 calls by shorting 100,000 puts This means that Delta Portfolio = number of calls *...
  7. J

    September 2023 Q9

    It's because the solution is trying to replicate the product return only as opposed to replicating the index. So, in the payoff diagram, the x-axis is the index, the y-axis is just the return. Constantinos - off the top of my head, adding 0.1exp(-0.02*10) should just adjust the height across...
  8. J

    CM2 September 2021 4i)

    September 2021 4i) is about put-call parity? Ah, Paper B. Could you please specify to help tutors find it quicker? We need to choose an arbitrary real-world up-step probability. p = 0.5 is a bad choice since we have p < q and this is not consistent with investors being risk averse. In our...
  9. J

    Paper B pre-exam material

    Correct. Usually, no files are sent out in advance for CM2
  10. J

    CM2B April 2024 Q1.V)b)

    This formula does not make sense. The TVaR should be calculated properly, using truncated moments of a lognormal distribution on page 18 of the Tables.
  11. J

    2023 CM2A September Question 9

    https://www.acted.co.uk/forums/index.php?threads/answering-black-scholes-with-payoff-diagrams.20045/
  12. J

    2023 CM2A September Question 9

    Hi Sunseeker, You should try all of this in Excel. There are various choices... - You can buy the underlying, sell a call (1.5) and buy a put (1.1) I think this is where your head is. - You can buy a call (1.1), sell a call (1.5). This will give you the same shape of payoff diagram but the...
  13. J

    CM2B September 2024: Exercise 2 part ii

    Hi Constantinos, It's subjective, of course, and there's really nothing wrong with what you've done. Without the words "single time step" in the question, I would probably then switch to saying that your method is the more obvious interpretation. Especially, as you point out, the analytical...
  14. J

    CM2 April 2021 Paper B Q2ii)

    It's not the best sentence but it's getting at the idea that you can't take S out of an equation that sums across it's possible future values. You can't do this sort of maths.... E = Sum across s of { s P[S=s] } = s * Sum across s of { P[S=s] } which is effectively what's being done by the...
  15. J

    Why is the +Q inside the expectation for finding the minimum premium from the insurer's perspective?

    I need to add one word to your sentence.... So in every approach we should look at the Utility of not taking the event (which is usually the Utility of the current wealth) and then equate that to the Expected Utility of taking on the event. In context, this would allow us to see at what...
See more
Back
Top