Reference no: EM132935091

AFE 6013-B Risk Management And Derivatives - University of Bradford

The assignment is composed of two separate sections:

Part 1

The task is to collect daily adjusted closing prices for the last three years for 10 companies of choice, making sure that the time span fully covers three years. Data need to be collected from official sources either provided by the University (Bloomberg, DataStream) or web based (YahooFinance). In addition to stock prices, each student is required to collect adjusted daily closing prices for the S&P500 index. The list of stocks will form a portfolio and each student can freely choose the weighting of each stock in the portfolio, except equal weighting. The report should include the following:

1. Relevant descriptive statistics of the data set for the 10 equities and the market index
2. An estimation of the 1-day VaR at 95% and 99% confidence levels for the portfolio with the chosen weights
3. The 10-days VaR at 95% and 99% confidence levels for the portfolio with the chosen weights
4. The estimation of expected shortfall (CVaR) for both VaRs in 2. and 3.

Part 2

The task is to numerically value 2 options, one call and one put (European or American) on one of the stocks selected in part 1 by using the binomial lattice framework and comparing the result with the Black-Scholes option valuation method.

Guidelines:
1. The options to be valued and the underlying asset are to be selected according to the student's choice
2. The two options, one call and one put must have the same strike price and maturity and the maturity must be at least 6 months.
3. Both results obtained using the binomial lattice and Black-Scholes formula have to be compared with the market price.
4. Put-call parity relationship needs to be shown.
5. The lattice should have at least 200 steps.
6. Sensitivity analysis should be performed.

Attachment:- Risk Management And Derivatives.rar