The buyer of an option has the right but not the obligation to exercise the option. The maximum loss to the buyer is equal to the premium paid for the option. The potential gains are theoretically infinite. To the seller (writer), however, the maximum gain is limited…

Bond valuation is an application of discounted cash flow analysis. The general approach to bond valuation is to utilize a series of spot rates to reflect the timing of future cash flows. Value, Price, and TVM Value can be described as…

Covariance The covariance is a measure of the degree of co-movement between two random variables. For instance, we could be interested in the degree of co-movement between the rate of interest and the rate of inflation. X = interest rate…