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CT8 September 2015 Q7

R

rlsrachaellouisesmith

Ton up Member
Hi,

In (ii) the answer has been given to the nearest 0.1%, in most of the implied volatility questions it states 'give to the nearest 1%'. If a question does not ask for a specific level of accuracy should we go for 0.1% to be on the safe side?

In (iii) the question asks for the corresponding hedging portfolio I gave this to be short 59 shares and invest 440$ of cash. The solutions have given the replicating portfolio. I thought the hedging portfolio was the opposite of the replicating portfolio and so this is what I gave. Can you confirm that I would receive marks for what I gave? Is it right?

Thank you
 
(ii) Now that Excel can be used to calculate the answer the specific level of accuracy is a moot point.

(iii) That's fine. Historically the Core Reading and exams have created some ambiguity around the difference between replicating and hedging. It is usually clear from the context of the question which is intended. In this question both directions were credited with marks.
 
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