15.437  Options & Futures Mkts

Dear everyone

I am glad the semester is done and I am sure you are enjoying the time off as well.
Now some grade discussion- they are posted by the way. The final was a little bit more challenging since it covered more topics than the midterm.  I realize that some of you might have questions about you grades so I have now arranged (I had to get Alex's permission for this...) that you can come and look at the finals (cannot take them with you unfortunately) by going to Bridget Hayes on the 4th floor near the breakroom and checking how the questions on your paper were graded. We definitely tried to curve up and give as many people a boost as possible.... A few notes on specific questions

• Most people had problems with Q1(c) the negative time value option question.. all a negative time value means is that the option is in the money (you can prove this using put call parity and recognizing that the value of delta for simple european options is never greater than 1)
• If the up and down probability was same as risk neutral what is the expected return- well it is the risk free rate since there is no risk premium
• In the Black Scholes questions if you get a delta more than one you REALLY should check your answer.. since you have done something wrong
• For market making if no spot movement then there is delta bleed and if the option is ITM that's good and if OTM that's bad....(if you are long and the reverse if you are short)
  
• If market maker is short an option and the option decays away the market maker makes a profit...

. If you are still unhappy with your grade you can come leave a note with Bridget and email me about a specific question.

I thinkwe all learnt a lot from the class and wanted to thank you for the semester.
Happy Holidays

Apurv

Hey guys
I just uploaded recitation 5 slides.
Other tips
- make sure you can do black scholes formula quickly
- remember put call parity and use it (including dividends)
- for early exercise of american options remember how to use inequalities
- practice a few binomial trees
- don't panic!

Good luck
Apurv

I am going to do questions that will help prepare you guys for the exam. If you send me topics/particular questions that were hard I will do those before I do anything else. Let me know and good luck!

Apurv