Comparison of theoretical and market prices option contracts and Hedging strategy using options

/in /by

Kingdom of Saudi Arabia
Ministry of Higher Education
Imam Abdulrahman Bin Faisal University
College of Business Administration

COLLEGE OF BUSINESS ADMINISTRATION
  Financial Derivatives and Risk Management  (FIN-501) Group Assignment – Guidelines

The group project assigned to you provides an opportunity to work with a group of your fellows and investigate a topic that interests you and is related to Derivative markets. The assignment has three main purposes. First, the group project is designed to be a practicum for learning about risk management and use of option derivatives as risk management tool. Second, writing is an important skill in any profession and this is an opportunity for you to enhance your writing skills.

Topic and Details of Assignment:

Comparison of theoretical and market prices option contracts and Hedging strategy using options

  • Each group will consist of a maximum of 4 members.
  • Each group needs to select at least 1 company from US or European derivative markets.
  • For each company, different call and put options traded in the market with two different expiration dates should be selected. The expiration dates may be one month, two months, three months, six months or maximum one year.
  • For each expiry date, a minimum of 2 call options and 2 put options should be selected with different strike prices.
  • For the selected companies find the risk-free rate of the domicile country of derivative markets.
  • Collect the data of market prices of underlying stock for last one year and calculate the annual volatility.
  • Calculate the theoretical price of call and put options for all the selected options using Black Scholes formula or Binomial model.
  • Find the difference between theoretical price of options and market price of options and give at least 2 possible reasons for this theoretical and market price difference.

Write-up Guidelines

References

  • The reference section must be on a separate page, if you want to give references for possible reasons of difference in price.
  • Only cite materials that were discussed/referenced in your assignment. Moreover, all materials that were cited in your paper (from any source) must appear in the reference section.

Format of the Research Project

Abstract.

  1. Introduction.
  2. Analysis and Calculations
  3. Findings & Discussion.
  4. Conclusion
  5. References (APA Referencing style).

Include Tables, figures, diagrams, charts etc. wherever necessary.

  • Times New Roman font 12. 1.5 or 2 line spacing with minimum word limit of 2500 words
  • The report will be checked for plagiarism using BB. Make sure that except what you quote with references or cite data, you should write IN YOUR OWN WORDS
  • The submission will be through Blackboard.

Deadline:

You need to upload your WORD or PFD file on Blackboard along with EXCEL file.