An Investment Bank Has Come Up with a New Product

question 89

Essay

An investment bank has come up with a new product on the S&P 500 index.It offers an appreciation share,the owner of which is entitled to all price appreciation over 10% in the first two years and over 20% in the next three years after that.If the current index value is 250,the riskless rate is 8%,the dividend yield on the index is 3%,and the annualized standard deviation of the index is 20%,what is the value of this share? (Hint: There might be more than one option in this share.)

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Definitions:

Clustering

A process in machine learning and statistics where groups of similar objects or data points are identified and grouped together.

Keeping A Journal

The practice of regularly recording one's thoughts, experiences, and observations in a diary or notebook.

Brainstorming

Brainstorming is a creativity technique involving the spontaneous contribution of ideas from all members of a group to solve a problem or generate ideas.

Focused Freewriting

A writing strategy intended to promote ideation and creative thought by writing continuously for a set period without regard to spelling, grammar, or topic coherence, while maintaining focus on a particular subject.