Assignment:
Present a mock situation where an investor or bank or corporation decides to use a derivative. You can make up any situation you like and engineer any type of derivative or combination of derivatives, as long as you can price it.
You have to state clearly:
a) The background situation
b) The derivative: name, verbal description, payoff function and all the relevant specifications of the derivative you propose
c) Why the derivative is appropriate for the mock situation described in a)
d) Pricing methodology: use all the pricing techniques which are appropriate or applicable to your derivative and explain why they can/cannot be used. If there is a necessity to use a computer software for this purpose – it should be Matlab program.
e) Assumptions needed for your pricing result; be as realistic as possible in your assumptions and discuss the possible effect of potentially non-realistic assumptions you cannot avoid making.
f) Risk management: present the “Greeks” analysis and its practical implications in your mock situation.
The results are to be presented in a 20-minute PowerPoint presentation (max 10 slides - with the procedure) with Q&A.