Explain the role of participants in the derivatives market

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Reference no: EM133067800

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

Task 1 Critically explain the role and objectives of the main participants in the derivatives market. Provide examples to illustrate and support your answer.

Task 2 The task is to collect daily adjusted closing prices for the last five years(the closing prices of Dec 2021 must be included)for 12 companies of choice, making sure that the period fully covers five 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&P500index. 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 12 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 5-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.

The VaR estimation must be performed using both the variance-covariance method as well as the historical simulation method. Where suitable, students may include graphs to support their argument. Students are required to fully explain the procedure and estimation methods, using references from the academic literature and regulation, rather than textbooks.

Task 3 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 is 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 the 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

Reference no: EM133067800

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