Question

1a. What are the major indexes for different asset classes and in different countries?
1b.. What are Dow Jones Industrial Averages and S&P 500?
1c. What’s price weighted average and market value weighted average? How to calculate them?
1d. What are call and put options? What are the payoffs and profits of call/put options?


1e. What are the main determinants of call/put option price? How do they affect the option price?
1f. What’s a future contract?

Answer 1

1a. Some of the main asset classes are Equities or Stocks,Fixed income or Bond,Real estate or other Tangible assets,commodities.

Major indexes for different asset classes & in different countries are as follows :

1)Index for Equity : MSCI ACWI All cap Total Return Index and FTSE Global All Cap Total Return.

2) Index for Fixed Income : Citi Group 1-month treasury bill index.

3) Index for Real Estate: FTSE EPRA/NAREIT Global REIT Total Return Index.

4) Index for Commodities: S&P GSCI Total Return Index.

1b. Dow Jones Industrial Average:

It is a price-weighted average of 30 significant stock traded on the New York Stock Exchange and the NASDAQ.

S & P 500 :

It is an American Stock market Index based on the market capitalization s of 500 large companies having common stock listed on the NYSE,NASDAQ or the Cboe BZX exchange.

1c. Price weighted average:

It is an index in which the member companies are weighted in proportion to their price per share,rather than by number of share outstanding,market capitalization or other factors.

Calculation: Add the numbers (Stock prices) together and then divide by the number of stocks in the average.

Market value weighted average :

Weighted average market capitalization refers to a type of stock market index construction based on the market capitalization of the index's constituent stocks.

Calculation : A measure of security prices adjusted according to the market value of each security included in the average.

1d. Call option : It is an option to buy assets at an agreed price on or before a particular date.

Put option : It is an option to sell assets at an agreed price on or before a particular date.

Pay off and Profit of call/put options is an option which gives it's buyer the right to buy (call option) or sell (put option) something in the future to the option seller at a predetermined price.

1e. Main determinants of call/put option price are Current price of the stock, The strike price, Option type, Period before expiry, Volatility, Interest rates and Dividends.

The amount of premium is determined by several factors like underlying stock price in relation to the strike price, the length of time until the option expire (thr period before expiry) and how much the price fluctuates (volatility value), types of option. Interest rates and Dividends have minuscule effect on option value.

1f. Future contract :

A future contract is a standardized forward contract,a legal agreement to buy or sell something,at a predetermined price at a specified time in the future.