FINA5520: Group Assignment (20%)
September 10, 2022
Instructions:
ˆ Submission deadline: 14 October 2021 (by 4pm Perth time)
ˆ Please read the course pro le about late submission; it says A penalty of 5 per cent of the total mark
allocated for the assessment item is deducted per day for the rst 7 days (including weekends and public
holidays) after which the assignment is not accepted. Each 24-hour block is recorded from the time
the assignment is due. For example, if an assignment is late by three days and was given 45 out of a
possible mark of 50, you would receive a mark of 37.5 out of 50 (a mark of 2.5 is deducted per day).
ˆ This is a group assignment, consisting of three questions. Each group has 3 students.
ˆ Submit only one report and one Excel le per group via LMS > Assessments > Assignment (20%).
ˆ Questions 1 and 2 can be solved using the knowledge gained from lectures 4, 5 and 7. Question 3 can
be solved using the knowledge gained from lecture 8 (and some from lectures 9 and 10).
ˆ The submitted report must be in pdf format. The report and Excel le must be named according to
your group numbering (e.g., Group01.pdf and Group01.xlsx for group 1). Click this link to identify
your group numbering.
ˆ Answer Questions 1 and 2 in the pdf report, and Question 3 in Excel.
ˆ All submissions will be cross-checked using Turnitin for potential plagiarism.
ˆ This assignment has 25 points, but will be marked as 20%. However, you should check for grammar,
spelling, typos etc. That is, make sure your report is presentable. If your report has excessive gram matical errors, typos etc (i.e., not presentable ), then a maximum 5-point-penalty will be imposed.
ˆ All students in each group will be given the same mark, subject to SPARK Assessment. If SPARK
Assessment shows otherwise, I will conduct separate interviews with each of the group members. If the
allegation is proven, the student in focus will have his/her individual mark scaled down accordingly.
Reasons such as I don’t have time to contribute to my group because of my on-going internship or I
don’t know how to help my group are not acceptable.
ˆ Everyone must have a group by September 18, 2022. If you don’t have a group by then, your individual
mark will be deducted accordingly. Hence, it is your responsibility to inform me prior to September
18, 2022 if you don’t have a group by then, so that I can assign you with one.
1
1 Equity options (5%)
The objective of this question is to learn reading, and utilizing, equity options information obtained from
Eikon. Before beginning, I suggest you to watch the Eikon Option Pricer App training video (https:
//training.refinitiv.com/videoplayer/playlist/503/23097) to familiarize yourself with using Eikon.
Then, access Eikon, and in the search command (located at the top left hand corner of the screen), enter
AAPL option and use these settings:
ˆ Exchange: OPRA
ˆ Expiry: Dec 16, 2022
ˆ Strike: All
ˆ AAPL spot closing share price is shown at the top of the screen.
ˆ Information about call and put options are shown on the main screen. In the last column, the c
character in (say) 125.75c means the (latest) closing option price . Use the numbers shown in the last
column in your discussion below.
Required: Apple Inc. (ticker: AAPL) released the new Iphone 14 on September 8, 2022. You believe that
the new product will result in AAPL share price to rise above the current price by (at least) 10% in mid
December 2022. Given the information about call and put options shown on the screen, which options would
you use to make money from a correct prediction? In the report, show the Eikon screenshot, and:
1. discuss whether you will take a long or a short option position,
2. discuss whether you will use a call or a put,
3. specify the option strike price that you will use, and most importantly,
4. discuss why you choose the call/put option of your choice, and why you didn’t choose other options.
Note: There is no de nite answer to this question. It is a matter of examining the options available in the
market, and rationally considering which might be appropriate, and inappropriate. Thus, marks are awarded
based on how you justify your pick, and why you didn’t choose other options. Limit your discussion to no
more than 5-6 sentences, and write them in point form (not in a paragraph).
2
2 Options trading strategies (10%)
The objective of this question is to construct basic option trading strategies using Eikon. Before beginning,
I suggest you to watch the Eikon Option Pricer App training video (https://training.refinitiv.com/
videoplayer/playlist/503/23097) to familiarize yourself with using Eikon. Then, access Eikon, and in
the search command (located at the top left hand corner of the screen), enter AAPL Option Pricer , and
use these settings:
ˆ Underlying stock: AAPL (Apple Inc)
ˆ Trade date: Sep 08, 2022
ˆ Leg type: Vanilla
ˆ Deal type (sell or buy): It depends on the option strategy required below
ˆ Ccy/unit: USD / 100 shares
ˆ Option style: European
ˆ Option type (call or put): It depends on the option strategy required below
ˆ Calculate: Black Scholes
ˆ Underlying price: Last
ˆ Expiry: Dec 16, 2022
ˆ Moneyness: It depends on the option strategy required below
You are required to construct the following two independent strategies (see CME_brochure.pdf for guid ance):
1. Bear spread, with the rst strike price is $20 below AAPL last share price (which is observed on trade
date; see setting above), and the second strike price is $20 above AAPL last share price
2. Long strangle, which consists of 105 moneyness for both call and put options
Required: For each strategy, show the Eikon screenshot of terminal pro t diagram (activate Show sce nario in Eikon). You might want to adjust Range Min and Range Max when plotting the diagram. Then
explain (in your own words and in no more than 4 sentences) why the strategy is constructed. Write your
explanation in point form (not in a paragraph).
3
3 Monte-Carlo simulations (10%)
You must use the Monte-Carlo simulation technique to price all the derivatives in this question. Use only
Excel and do NOT use macros, VBA, VBE, or any programming languages. Submit the Excel le. Marks
are awarded only if your answers can be automatically updated when I push the F9 button.
A stock is currently priced at $10. The dynamics of the stock price are modelled using the familiar speci cation
of:
St+∆ = St exp h

Published by

Essays

View all posts