$100.00 help help help
Identify an option (in any market in the world) that you believe is mispriced. Explain,
illustrate and justify clearly why you think the instrument is mispriced.
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 (even if it was advantageous to close-out early – you
can discuss this in your report).
Write a report detailing all your transactions and the rationale behind them.
Retrospectively, it is possible to determine if your belief in the option you thought was
mispriced in Part A was correct or not. Once you have completed Part A (requiring
at least holding the position for 3 weeks – one week you form the portfolio and
2 subsequent weekly delta re-balances) go back and using historical data determine
if the option was truly mispriced and whether you took the correct positions to
benefit from the mis-pricing. Discuss your methodology for examining if the option
was mispriced in your report and your interpretation of the results in this new lights.
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:
- Transaction costs used for all transactions, with evidence that it is a realistic figure.
- How the mispriced options were identified
- How risk neutral portfolios were formed and why
- when would have been the best time to close out positions
- Explanations and reasons for the performances
- Performance analysis and discussions of how things could have been improved.
The above 6 items will form the crux of what you will be assessed
on, along with presentation and concise writing skills. Your report length can
be a MAXIMUM of 12 pages(size 12 font, sing spacing), including all discussion,
graphs, tables and references.
http://www.afr.com/share_tables/is useful for the assignment.
- This tutorial hasn't been purchased yet.
- Posted on May 06, 2012 at 11:27:32PM
Finance Report.doc (36K) (Preview)