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#1
07-17-2007, 01:46 AM
 leathercost Member SOA Join Date: Mar 2005 Posts: 38
EOM Exercise

The EOM exercise has been released for a while. Anyone starts looking at the exercise and wants to discuss it?
#2
07-17-2007, 02:12 PM
 red Member Join Date: Nov 2002 Posts: 125

I will take a look at it. Once I look, maybe we can discuss.
#3
07-18-2007, 11:37 AM
 red Member Join Date: Nov 2002 Posts: 125

I have looked and am happy to discuss. Have you started?
#4
07-18-2007, 12:50 PM
 leathercost Member SOA Join Date: Mar 2005 Posts: 38

Quote:
 Originally Posted by red I have looked and am happy to discuss. Have you started?
Yeah.
I found task one is very obvious and shall take some time to have the spreadsheet done with those figures.
But for task two, I think it's a little bothered.
#5
07-20-2007, 10:23 AM
 leathercost Member SOA Join Date: Mar 2005 Posts: 38

Does anyone get 67.75 for the initial cost of hedge?
I also got -2.46 for the present value of hedge error for scenario 1 of RSLN model. In addition, I got 0 hedge error at maturity no matter which scenario and which model are used. That's little weird.
#6
07-24-2007, 10:12 AM
 red Member Join Date: Nov 2002 Posts: 125

My numbers are pretty different. I haven't run all the scenarios through a macro yet to see where they all fall out, but the first LN, I have an initial hedge cost of 3.65 and an NPV of 38.88. Maybe we should walk through our calcs.
#7
07-24-2007, 11:35 AM
 leathercost Member SOA Join Date: Mar 2005 Posts: 38

Quote:
 Originally Posted by red My numbers are pretty different. I haven't run all the scenarios through a macro yet to see where they all fall out, but the first LN, I have an initial hedge cost of 3.65 and an NPV of 38.88. Maybe we should walk through our calcs.
What's your r and sigma for B/S model on a monthly basis?
Mine are
r = 0.5% and sigma = 5.2%.
#8
07-25-2007, 04:35 PM
 red Member Join Date: Nov 2002 Posts: 125

Quote:
 Originally Posted by leathercost What's your r and sigma for B/S model on a monthly basis? Mine are r = 0.5% and sigma = 5.2%.
I fixed my r and sigma and now get NPV of first scenario to be -1.53 and hedge cost looks like 53.88.

I wonder if my problem has to do with the mer=.25%. I know the problem talked about it being paid up front. Does that mean I should take the monthly fee * 24 out from the inital \$1000 and start with \$940?
#9
07-26-2007, 02:06 AM
 leathercost Member SOA Join Date: Mar 2005 Posts: 38

Quote:
 Originally Posted by red I fixed my r and sigma and now get NPV of first scenario to be -1.53 and hedge cost looks like 53.88. I wonder if my problem has to do with the mer=.25%. I know the problem talked about it being paid up front. Does that mean I should take the monthly fee * 24 out from the inital \$1000 and start with \$940?
Agree with you. My previous results are based on that the management charges are paid at the BOM.

But after I modified so that the management charges are paid in advance at issue, my initial hedge cost comes to \$68.36 and the PVHE is -\$2.56. BTW, my d1 for year 1 is 0.3556.
#10
07-26-2007, 01:31 PM
 red Member Join Date: Nov 2002 Posts: 125

Quote:
 Originally Posted by leathercost Agree with you. My previous results are based on that the management charges are paid at the BOM. But after I modified so that the management charges are paid in advance at issue, my initial hedge cost comes to \$68.36 and the PVHE is -\$2.56. BTW, my d1 for year 1 is 0.3556.
So we must be getting closer - I match your d1. my d2 = -.2136. Do you get that? My stock part of the hedge = -339.40 and bond = 320.82, so initial hedge cost = -18.58.