Investing with Financial Derivatives
Investing with Financial Derivatives
This coursework will run over the first semester of the module. The objective of this exercise is to familiarise students with the practical aspects of portfolio analysis and the buying and selling of securities and to give practice in teamwork and presentation skills. The coursework counts for 20% of the assessment for this module.
Coursework Rules
- a) Each team will comprise of 4-5 students.
- b) Each team has an imaginary $50,000.00 to invest or the starting amount of money specified by the trading platform.
- c) You must formulate your strategy and plan to enter the market no later than the end of week 4
- d) The team must construct a portfolio which includes at least 75% to derivatives securities while the rest can be the underlying securities or simply cash.
- e) The portfolios must involve securities issued by at least four different companies or indexes. You could include more assets but bear in mind the difficulty of tracking a portfolio with a large number of securities.
- f) You must take at least one bullish position and one bearish position. You might write options but cannot take a short position with an initial margin exceeding $25,000 or the amount specified by the trading platform
- g) Unless specified directly by the bid and ask prices in the trading platform, trading costs are $1.5 per option contract, $10 minimum per trade. You must account for the trading costs in your report. Note that you will have to pay this commission both when opening and closing each position!
- h) A Final report of not more than 6000 words must be prepared by each group. Note that, the final report must include an appendix (which is not included in the word count) detailing the expectations (or role) as well as the actual contributions by each member and approval from all individual members. Any member that provides insignificant contributions will be subject to a separate individual assessment or will be marked differently from the rest of the group.
Coursework Criteria a) Explanation of the investment strategy (20%): Show and detail your views (expectation) of the outcome of the strategy b) Understanding of the financial instruments (20%): Explain why a set of particular instruments would be suitable to your strategy c) Support from the literature (20%): Critically evaluate your strategy against the existing literature (studies). Identify support for/against your strategy. d) Consideration of changes to the strategy motivated by observed portfolio performance (20%): Once you execute the strategy, you might be able to observe your performance (i.e. Profit/Loss). Could you explain what might affect your performance? Is there any significant event during your sample that affect your performance? Should you change your strategy? e) Structure and the written presentation of the coursework (10%) f) Oral presentation of the coursework (10%): toward the end of semester 1, you will have chances to present your strategy to help clarify your views and obtain feedback from the module staff.