What are the limitations of the linear probability model (LPM)? Explain how these limitations are taken care of by the probit model.

 How do you express the multiple regression model in matrix form? Derive OLS estimator for the parameters of the model. Show that the OLS estimators are Best Linear Unbiased Estimators (BLUE).

What is meant by dynamic model? Explain how the following model can be estimated?
yt =α +βxt + γyt-1 + ut
where |γ| < 1 and ut = ρ ut-1 + εt. In the above model εt is the usual stochastic error term with mean zero and
variance σ2 and |ρ| < 1.

 Explain how the first equation in the above model can be estimated.

 In the following two-equation system check the identification status of both the equations.
Y1 = α1+α2 Y2 + β1Z2 + u1
Y2 = β2 + β3Y1 + β4Z1 + β5Z2 + u2

What is meant by identification problem in a simultaneous equation model?

In the case of a two-variable regression model show that TSS = ESS + RSS. Use appropriate diagram to explain your result. In this context, define the concept of R-squared and interpret it.

Black-Scholes model

Premium principles

Discuss the objectives and the structure of Dynamic Financial Analysis (DFA).

Give a brief account of the factors that are instrumental in insurance sector reforms in India.

Describe the factors that affect the calculation and estimation of re-insurance.

Explain the various steps for applying Extreme Value Theory (EVT).

Distinguish between single period binary model and multi-period binary model. How do you formulate a binary model? Explain the method of determination of the right price.

Describe the Gambler's Ruin problem. Explain how you can find out the duration of a walk, both in the case of unbiased walk and biased walk.

Suppose there are two large economies. One has fixed exchange-rate system. The other has flexible exchange rate system. Compare monetary policy in both.

 Explain the need for and role of depository systems in secondary markets. Explain the concept of custodial services.

Discuss the concept of leverage for a firm. Discuss the important financial and leverage ratios used. Explain the Merton-Miller theorem.

Discuss the Black-Scholes formula on derivative pricing.

Critically examine the major theories that have been put forward to explain the term structure of interest rates.