Assessment - Essay
Topic Authentic Task - Individual Essay
Detailed Information Authentic Task - Individual Assignment The aim of the essay is to assess student's active learning by asking them to build a leveraged portfolio using derivatives. A market quoted stock will be assigned to each student who has to monitor the actual price trend during the time the subject is running. At the same time the student has to build two different scenarios based on bad and booming trends for the assigned stock.
Following a Montecarlo simulation, the student has to apply hedging strategies on a marking-to-market basis to minimise losses and/or maximize profits. At the established expiration, the student has to report the theoretical and actual value of its portfolio, as well as alpha, beta, delta and vega of the portfolio with the relative leverage level.
Once a stock is assigned, the student has to monitor and report the actual daily change using an excel spreadsheet and build the daily alpha and beta of a synthetic leveraged portfolio. The time horizon is 6 weeks (expiration).
Following a standard Montecarlo simulation, the student has to build two different scenarios, showing potential losses and potential gains within the horizon established.
Based on the two scenarios above, the student has to build two hedged portfolios per each scenario respectively, by taking leveraged position on both futures and options trading over assigned stock. Positions must be reported using the payoff scheme taught in the subject.
The student has to evaluate its daily position and portfolio value according to:
- The two different scenarios (bad vs booming).
- The actual price changes of the underlying stock assigned.
Report the Delta and Vega of the portfolio.
Brief conclusion and suggestions based the distinction between trading the hedged portfolio as a professional and an individual to measure the relative risk exposure.
Attachment:- Assignment Files.rar