Derivatives Securities Major Assignment (Project)
a. Select a Derivative Securities Exchange of any country or region of your choice and analyze their lines of businesses, derivatives products, operations, etc. Select some of their derivative products and relate that to what you have learned during the semester.
b. In writing your Final Report you are required to adhere to the following guidelines:
1. Cover page
2. Executive summary.
3. Introduction and Objectives
4. Description of the Derivatives Exchange, Traded Products and Operational Platform
Appendix A: Calculations, Analysis, Explanation of Results and Decision-Making (Details of Calculations and Analysis)
Below are some practical guidelines that can aid you in complying with this important “Core” section:
(1) Calculation and Analysis Requirements:
a) Collect historical daily time-series dataset of a stock or a stock market index of your choice or any other trading asset. The dataset should be at least three months of the most up-to-date daily data.
b) You can go to [url removed, login to view] or any other sources of database and obtain the historical prices of your stock or stock market index or any other trading asset.
c) Perform daily return and annual volatility calculations on your stock (or stock market index) in Excel sheets.
d) In order to estimate daily return and annual volatility, you can refer to chapter 13 in the textbook.
e) Apply the obtained annual volatility as input into the Financial Trading System (FTS) to simulate the behavior of options contracts' premiums under different market circumstances and to produce sensitivity analysis of both Call and Put options contracts.
f) Analyze and explain your results and findings and decision-makings.
g) Produce a full professional assignment (project) report with all calculations, Excel sheets, Tables & Graphs, FTS outputs (simulation and sensitivity graphs), results & findings, decision-makings, conclusion, etc.
(2) Questions and other Requisites to be addressed in the Assignment (Project):
a) Analyze and explain the level of annual volatility of your stock or index that you estimate in Excel sheet.
Note: Compare your annual volatility with the average market volatility of stocks or stock market indices.
b) Get the spot market price (level) of your stock or index (i.e. the latest market price/level of your stock or index) and assume an option contract of 0.25 year (three months) to maturity and with annual interest rate of 5%. At this moment, apply the annual volatility you have estimated earlier in Excel sheet and assume “Three” different Strike Prices [At-The-Money (ATM), In-The-Money (ITM) and Out-of-The-Money (OTM)] and determine the premiums of both CALL and PUT options contracts and the corresponding “Delta Call” and “Delta Put” and the overall “Delta Hedging” (Note: assume you are the market-maker who sells both Call and Put options contracts in addition to a portfolio of Call and Put options contracts). Create a table of comparison in Excel sheets and analyze and explain your findings and decision-makings.
c) Use the “Sensitivity” tool in FTS system to analyze and study the impact of changing some of the “prominent variables” on both Call and Put premiums (Option Value) and for all ATM, ITM and OTM options you select above. The Sensitivity analysis should be performed on the following variables: Asset Price, Strike Price, Volatility, Maturity, Interest Rate (Risk Free Rate) and dividends. Draw the sensitivity graphs for each case and analyze and explain your findings and decision-makings.
d) Using Excel worksheets create some of the derivatives strategies you learn in class during the semester (such as, Protective Put, Straddles, Strangles, Condors, etc).