A
Andrew Finn
Member
I can't see how the examiner has worked out that holding -1000 Call Options and 2296 Put Options is the portfolio that maximises the probability of repaying the loan. I can see from the spreadsheet that -1000 and 2296 give a bigger probability of repayment than in Part (v), but I'm not sure how we know this is the maximum, or how we are meant to arrive at -1000 and 2296.
Is there a Goal-seek type function that can be used to maximise Cell I6 (the probability of repayment) by changing cells D3 and E3 (subject to them summing to 10,076) ? Or are we meant to use a Lagrangian technique to maximise the probability?
At the minute, the only way I can see to get to the answer is some elaborate Trial and Error. Any help would be really appreciated!
I've attached the question paper and Q3 solution spreadsheet
Thanks
Is there a Goal-seek type function that can be used to maximise Cell I6 (the probability of repayment) by changing cells D3 and E3 (subject to them summing to 10,076) ? Or are we meant to use a Lagrangian technique to maximise the probability?
At the minute, the only way I can see to get to the answer is some elaborate Trial and Error. Any help would be really appreciated!
I've attached the question paper and Q3 solution spreadsheet
Thanks