Options, Futures and Risk Management Assignment
- You are expected to work in groups of two to three members.
- Submit ALL reports in hardcopy form to myself by the start of the second intensive.
- Make SURE you keep a copy of ALL of your work. It may be required for proof of submission if it is lost.
- You must determine transaction costs used for all transactions you do with evidence it is a realistic figure.
Identify a CALL or PUT option / warrant (in any market in the world) that you believe is OVERPRICED. Explain and illustrate clearly why you think the instrument is mispriced. If you have completed the EVA assignment that required you to collect data for stocks you could pick one of these stocks as a follow-on from EVA.
Develop an arbitrage, delta-neutral strategy that will make money from the mispriced derivative. Specifically, detail the minimum costs of undertaking this strategy and pursuing it. You can use as much money as you like. Given that the strategy is theoretically risk free, you should not lose any money anyway!
Every week you are responsible for adjusting your delta-neutral portfolio. Make a record of all transactions and profit / loss of the strategy. You are required to show evidence of at least two adjustments.
REPORT WRITING -
The report must document a list of transactions and dates they were executed. The document must then discuss everything from the process including such items as:
- How mispriced options were identified
- How risk neutral portfolios were formed and why
- Explanations and reasons for the performances
- When would have been the best time to close out positions
- Performance analysis and discussions of how things could have been improved.
I would suggest your report would be a MAXIMUM of 10 pages, including all discussion, graphs, tables and references.
Attachment:- Assignment Files.rar