First, Please look at the excel sheets. You will see the diminishing Musharakah sukuk with maturity of 5 years (60 months). The investor's income come from two ways:
1- Redeemed part R (column F). It is $1000 because the issuer redeem his assets at par value. (the face value of sukuk is $1000)
2- Periodic rental amount. (Column E). So, I want to you to do the following:
1- We want to the issuer redeem his assets based on the market (not at par value). So, we want to use the CRR model (binomial tree) to find the expectation value. (Remember that in Islamic finance or Islamic sukuk, we will replace the interest rate by rental rate).
In binomial tree, how we find the volatility σ ?
• At time 0, find thevolatility σ from historic data. ( Download the Sukuk data from any website).
• At time 1, 2,3,4,5, find thevolatility σ by using volatility forecasting Garch model from the same data.
2- For the periodic rental amount, we want to use the valuation of binary option (cash or nothing).
For this part, please try to make at least three scenarios for (cash or nothing) by binomial tree when you are using the binary option.
3- Please do these steps by excel sheets. (andmatlab if you can).
4- In the end, please write a report for all the above steps( CCR model, Garch model and binary option) and explain clearly by academic writing all these methods and how you used it. (At least 20 pages). (Add all the figures for tree and tables in this report)
5- Please do not forget to send me the data and give me its source?