I just posted the solutions for Problem Set 6, which include the most concise and informative explanations I’ve ever written on replicating portfolio, delta hedging, and risk-neutral valuation approaches to options pricing. You can access them via this link.
Here are some tips to effectively prepare for Midterm 2 with the limited time remaining:
- Rest Well: Ensure you get a good night’s sleep and arrive at Foster 303 on time for the exam tomorrow, starting at 2 p.m.
- Formula Sheet: Study the formula sheet thoroughly, ensuring you understand everything listed on this two-page document.
- Problem Set Solutions: Visit the “Problem Set Solutions” page and confirm your understanding of the solutions for Problem Sets 6-9, the Sample Midterm 2 exam, and the Wiener Processes class problems.
- Lecture Notes: If possible, review the lecture notes on Binomial Trees, Early Exercise of American Call and Put Options on Non-Dividend Paying Stocks, Effects of Dividends on the Pricing of European and American Options, Wiener Processes and Ito’s Lemma, Applying Ito´s Lemma to determine the probability distribution parameters for the continuously compounded rate of return and Actual versus Risk Neutral Probability of a Call Option Expiring in-the-Money.
Good luck, and I will look forward to seeing all of you tomorrow at the exam.