How has Threadless used crowdsourcing as the foundation of its marketing research?
> Using Monte Carlo, compute the 95% and 99% 1-, 10-, and 20-day tail VaRs for the position in Problem 26.2. Problem 26.2. Assuming a $10m investment in one stock, compute the 95% and 99% VaR for stocks A and B over 1-day, 10-day, and 20-day horizons.
> Compute January 12 2004 bid and ask volatilities (using the Black-Scholes implied volatility function) for IBM options expiring January 17. For which options are you unable to compute a plausible implied volatility? Why?
> In this problem we use the lognormal approximation (see equation (11.14)) to draw one-step binomial trees from the perspective of a yen-based investor. Use the information in Table 23.4. a. Construct a one-step tree for the Nikkei index. b. Construct a o
> Suppose that S1 and S2 are correlated, non-dividend-paying assets that follow geometric Brownian motion. Specifically, let S1 (0) = S2(0) = $100, r = 0.06, σ1 = 0.35, σ2 = 0.25, ρ = 0.40 and T = 1. Verify that the following two procedures for valuing an
> Consider again the bet in Example 21.3. Suppose the bet is S − $106.184 if the price is above $106.184, and $106.184 − S if the price is below $106.184. What is the value of this bet to each party? Why? Example 21
> Suppose that on any given day the annualized continuously compounded stock return has a volatility of either 15%, with a probability of 80%, or 30%, with a probability of 20%. This is a mixture of normals model. Simulate the daily stock return and constr
> What is E(St|St > $105) for t = 1? How does this expectation change when you change t, σ, and r?
> Assuming a $10m investment that is 40% stock A and 60% stock B, compute the 95% and 99% VaR for the position over 1-day, 10-day, and 20-day horizons.
> To answer this question, use the assumptions of Example 17.1 and the risk-neutral valuation method (and risk-neutral probability) described in Example 17.2. a. Compute the value of a claim that pays the square root of the cash flow in period 1. b. Comput
> Now suppose the firm finances the project by issuing debt that has higher priority than existing debt. How much must a $10 or $25 project be worth if the shareholders are willing to fund it?
> Let S = $40, K = $45, σ = 0.30, r = 0.08, and δ = 0. Compute the value of knockout calls with a barrier of $60 and times to expiration of 1 month, 2 months, and so on, up to 1 year. As you increase time to expiration, what happens to the price of the kno
> Assume K = $40, σ = 30%, r = 0.08, T = 0.5, and the stock is to pay a single dividend of $2 tomorrow, with no dividends thereafter. a. Suppose S = $50. What is the price of a European call option? Consider an otherwise identical American call. What is it
> Repeat the previous problem, except that for each strike price, compute the expected return on the option for times to expiration of 3 months, 6 months, 1 year, and 2 years. What effect does time to maturity have on the option’s expected return? Previou
> Repeat the option price calculation in the previous question for stock prices of $80, $90, $110, $120, and $130, keeping everything else fixed. What happens to the initial put ∆ as the stock price increases?
> Suppose call and put prices are given by What no-arbitrage property is violated? What spread position would you use to effect arbitrage? Demonstrate that the spread position is an arbitrage. Strike 50 55 Call premium Put premium 16 10 7 14
> Given an 8-quarter oil swap price of $20.43, construct the implicit loan balance for each quarter over the life of the swap.
> Using the same information as the previous problem, suppose the interest rate on the borrowing date is 7.5%. Determine the dollar settlement of the FRA assuming a. Settlement occurs on the date the loan is initiated. b. Settlement occurs on the date the
> Suppose that 10 years from now it becomes possible for money managers to engage in time travel. In particular, suppose that a money manager could travel to January 1981, when the 1-year Treasury bill rate was 12.5%. a. If time travel were costless, what
> For the period 1999–2004, using daily data, compute the following: a. An EWMA estimate, with b = 0.95, of IBM’s volatility using all data. b. An EWMA estimate, with b = 0.95, of IBM’s volatility, at each date using only the previous 60 days of data. Pl
> Compute estimated profit in 1 year if Telco sells a put option with a strike of $0.95, $1.00, or $1.05. Draw a graph of profit in each case.
> An off-market forward contract is a forward where either you have to pay a premium or you receive a premium for entering into the contract. (With a standard forward contract, the premium is zero.) Suppose the effective annual interest rate is 10% and the
> When you open a brokerage account, you typically sign an agreement giving the broker the right to lend your shares without notifying or compensating you. Why do brokers want you to sign this agreement?
> Repeat the previous problem, except that the time to maturity can be 1, 2, 3, 4, 5, 10, or 20 years. How does the bond yield change with time to maturity?
> Compute the 95% 10-day VaR for a written strangle (sell an out-of-the-money call and an out-of-the-money put) on 100,000 shares of stock A. Assume the options have strikes of $90 and $110 and have 1 year to expiration. Use the delta-approximation method
> Verify that the 4-year zero-coupon bond price generated by the tree in Figure 25.5 is $0.6243. Figure 25.5 FIGURE 25.5 Year O Year 1 Year 2 Year 3 20.03% Black-Derman-Toy interest rate tree constructed using the data in Table 25.1. Each rate is an e
> Use the following inputs to compute the price of a European call option: S = $50, K = $100, r = 0.06, σ = 0.30, T = 0.01, δ = 0. a. Verify that the Black-Scholes price is zero. b. Verify that the vega for this option is zero. Why is this so? c. Suppose y
> The quanto forward price can be computed using the risk-neutral distribution as E(Yx−1). Use Proposition 20.4 to derive the quanto forward price given by equation (23.30). Fo.T(Q) = Qoe"s-80-)T (23.30) %3D
> Suppose that the stock price follows a jump-diffusion process as outlined in Section 20.7. Let the jump intensity be λ = 0.75, the expected jump exp(αJ), with αJ =−0.15, and let the jump volatility be σJ = 0.25. You can simulate the behavior of the marti
> Consider Joe and Sarah’s bet in Examples 21.2 and 21.3. a. In this bet, note that $106.184 is the forward price. A bet paying $1 if the share price is above the forward price is worth less than a bet paying $1 if the share price is below the forward pric
> Verify that equation (23.7) satisfies the appropriate boundary conditions for Pr(ST≤ H and ST >K). Pr(S, <H and Sy > K) = N (d,) – N(d6) + S (4)* 25-1 N (dg) (23.7)
> Suppose that ln(S) and ln(Q) have correlation ρ =−0.3 and that S(0) = $100, Q(0) = $100, r = 0.06, σS = 0.4, and σQ = 0.2. Neither stock pays dividends. Use equation (20.38) to find the price today of claims that pay a. SQ b. S/Q c. d. 1/(SQ) e. S2Q Com
> Assume that the market index is 100. Show that if the expected return on the market is 15%, the dividend yield is zero, and volatility is 20%, then the probability of the index falling below 95 over a 1-day horizon is approximately 0.0000004.
> What is Pr(St > $105) for t = 1? How does this probability change when you change t? How does it change when you change σ?
> Consider the widget investment problem of Section 17.1 with the following modification. The expected growth rate of the widget price is zero. (This means there is no reason to consider project delay.) Each period, the widget price will be $0.25 with prob
> Now suppose the firm finances the project by issuing debt that has lower priority than existing debt. How much must a $1, $10, or $25 project be worth if the shareholders are willing to fund it?
> Consider the equity-linked CD in Section 15.3. Assuming that profit for the issuing bank is zero, draw a graph showing how the participation rate, γ , varies with the coupon, c. Repeat assuming the issuing bank earns profit of 5%.
> Repeat the previous problem for up-and-out puts assuming a barrier of $44. Previous Problem Let S = $40, K = $45, σ = 0.30, r = 0.08, δ = 0, and T = {0.25, 0.5, 1, 2, 3, 4, 5, 100}. a. Compute the prices of knock-out calls with a barrier of $38. b. Comp
> Repeat the previous problem for a 40-strike 180-day put. Repeat the previous problem Consider a 40-strike 180-day call with S = $40. Compute a delta-gamma-theta approximation for the value of the call after 1, 5, and 25 days. For each day, consider stock
> Make the same assumptions as in the previous problem. a. What is the 9-month forward price for the stock? b. Compute the price of a 95-strike 9-month call option on a futures contract. c. What is the relationship between your answer to (b) and the price
> Let S = $100, σ = 30%, r = 0.08, t = 1, and δ = 0. Suppose the true expected return on the stock is 15%. Set n = 10. Compute European call prices, ∆, and B for strikes of $70, $80, $90, $100, $110, $120, and $130. For each strike, compute the expected re
> Use a change of numeraire and measure to verify that the value of a claim paying ST if ST
> Consider the same 3-year oil swap. Suppose a dealer is paying the fixed price and receiving floating. What position in oil forward contracts will hedge oil price risk in this position? Verify that the present value of the locked-in net cash flows is zero
> Suggest some ways of encouraging respondents to cooperate in mail surveys.
> What is the difference between probability sampling and nonprobability sampling? In what situation would random sampling be best? Stratified sampling? Quota sampling?
> Where are data for marketing research obtained? Give examples of internal and external data.
> Describe the different types of approaches to marketing research and indicate when each should be used.
> What is marketing research? Why is it important?
> What role do ethics play in marketing research? Why is it important that marketing researchers be ethical?
> How has Threadless eliminated the cost of test marketing?
> How does Threadless create the equivalent of an online focus group to provide feedback on designs?
> How does TOMS’ business model relate to the understanding of stakeholders and strategic philanthropy?
> What are the forces in the marketing environment? How much control does a marketing manager have over these forces?
> How does TOMS manage its supply chain in order to ensure ethical and socially responsible conduct?
> Do you think TOMS is successful because of its unique products, or is it the firm’s approach to social responsibility?
> Describe stakeholder orientation at REI.
> How do REI’s values relate to the development of an ethical culture?
> How does REI implement social responsibility?
> What is social responsibility? Why is it important?
> What evidence exists that being socially responsible and ethical is worthwhile?
> What trade-offs might a company have to make to be socially responsible and responsive to society’s demands?
> How can people with different personal values work together to make ethical decisions in organizations?
> How can the ethical decisions involved in marketing be improved?
> What conditions must exist before a marketing exchange can occur? Describe a recent exchange in which you participated.
> Give an example of how ethical issues can affect each component of the marketing mix.
> What ethical conflicts may exist if business employees fly on certain airlines just to receive benefits for their personal frequent-flyer programs?
> How do the factors that influence ethical or unethical decisions interact?
> Why is ethics an important consideration in marketing decisions?
> What is the difference between ethics and social responsibility?
> What are some major social responsibility issues? Give an example of each.
> What is strategic philanthropy? How does it differ from more traditional philanthropic efforts?
> What are four dimensions of social responsibility? What impact do they have on marketing decisions?
> What are stakeholders? What role do they play in strategic marketing decisions?
> Determine the level of importance that marketing citizenship holds in your company. Identify the various stakeholders who would be affected by your strategic decisions.
> What is value? How can marketers use the marketing mix to enhance the perception of value?
> Referring to Table 4.2 as a guide, discuss how the negative impact of your product’s production and use could be minimized. Table 4.2 Table 4.2 Social Responsibility Issues Issue Description Major Soclal Concerns Sustalnability Co
> Using Table 4.3, identify additional issues related to your product for each of the 4Ps. Table 4.3 Sample Ethical Issues Related to the Marketing Mix Product Issue Product information Covering up defects that could cause harm to a consumer; withhol
> Why is ethical behavior so important for an auction company such as Barrett-Jackson?
> How do solid community relations help Barrett-Jackson succeed?
> In what ways does Barrett-Jackson protect the rights of its buyers and sellers?
> Describe the target market for Preserve products.
> Which elements of the marketing mix are key to Preserve in dealing with competition?
> What environmental forces will be most important to understand for Preserve to be successful?
> Describe consumerism. Analyze some active consumer forces in your area.
> In what ways are cultural values changing? How are marketers responding to these changes?
> How is Campbell’s trying to increase the customer’s perceived value of its soup?
> What evidence exists that cultural diversity is increasing in the United States?
> What factors influence a buyer’s willingness to spend?
> What business cycle stage are we experiencing currently? How is this stage affecting businesses in your area?
> Why are environmental scanning and analysis important to marketers?
> Discuss the impact of technology on marketing activities.
> What does the term technology mean to you? Do the benefits of technology outweigh its costs and potential dangers? Defend your answer.
> Name several nongovernmental regulatory forces. Do you believe self-regulation is more or less effective than governmental regulatory agencies? Why?
> What are the goals of the Federal Trade Commission? List the ways in which the FTC affects marketing activities. Do you think a single regulatory agency should have such broad jurisdiction over so many marketing practices? Why or why not?
> What types of problems do marketers experience as they interpret legislation?
> Describe marketers’ attempts to influence political forces.
> How would you define Campbell’s target market for soup?
> How do wealth and consumer credit affect consumer buying power?
> Define income, disposable income, and discretionary income. How does each type of income affect consumer buying power?
> In what ways can each of the business cycle stages affect consumers’ reactions to marketing strategies?
> What are the four types of competition? Which is most important to marketers?
