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C39SN2 Financial Derivatives Coursework Project
C39SN2 Financial Derivatives Coursework Project
Order ID 53563633773 Type Essay Writer Level Masters Style APA Sources/References 4 Perfect Number of Pages to Order 5-10 Pages Description/Paper Instructions
C39SN2 Financial Derivatives Coursework Project
You need to make submissions of two files for your coursework, in two separate links on Canvas:
A Word file of the full written project report.
This file should be named according to the following convention:
“C39SN_CW_Word_Group X’
where you replace ‘X’ with the group number you signed up to on Canvas.
This Word file should contain the following:
A cover page that contains the following information:
Title: ‘C39SN2 Coursework: Financial Derivatives Project’
Group number (the number of your group on the Canvas sign-up list)
C39SN2 Financial Derivatives Coursework Project
Names or IDs of all group participants;
Word count
A filled-in and signed ‘Coursework Group Self-Assessment Form’ (included with the course package and obtainable from Canvas). You can fill this in, scan it or photograph it, and append the scan or photograph at the end of your Word file.
An Excel file of your Excel calculations. Name this file:
“C39SN_CW_Excel_Group X”
where you replace ‘X’ with your group number, as on the Canvas sign-up list. Make sure you do not forget to identify your group number in the file name
Coursework Description and Objectives
An index option is a financial derivative that gives the holder the right, but not the obligation, to buy (Call) or sell (Put) a basket of stocks (e.g., S&P 100 or FTSE 100) at an agreed-upon price (strike price) on a certain future date (European), or any time up to that date (American).
Index Options on US stock indices are traded at the Chicago Board Options Exchange (CBOE, see www.cboe.com).
This coursework is an investigation of the pricing of options on the S&P 100 index.
There are European-style and American-style options on the S&P100. CBOE identifies:
European-style S&P100 options with the symbol code: XEO, and
American-style S&P100 options with the symbol code: OEX.
The full contract specifications can be found at
https://www.cboe.com/tradable_products/sp_100/sp_100_options
Approach
(You need to read Chapter 4 of Chance and Brooks (Option Pricing: The Binomial Model) prior to attempting the coursework. Links to all websites relevant to this coursework are given below.)
This is a demanding and challenging numerical coursework. You are advised to start as early as possible, and follow these steps in order:
Read Chapter 4 of Chance and Brooks (Option Pricing: The Binomial Model).
Read the instructions below to understand the requirements.
Read the instructions again and extract a list of ALL the data that you need to download (from CBOE, Bloomberg and etfdb.com, see below). This data will consist of
Prices (option premiums), exercise prices and time to maturity of European and American call and put options on the S&P100 index (from CBOE);
the level and volatility of the S&P100 index or of NASDAQ 100 (from CBOE);
the dividend yield on the S&P100 index (from www.etfdb.com); and
interest rate data (from Bloomberg).
Note that you will need to download all this data within the same 15-minute interval, since CBOE’s website provides data with a 15-minute delay, and updates its data every 15 minutes. If you download different pieces of the data during different 15-minute intervals then the data will not match with each other.
Prior to downloading the data logon to the relevant websites, including the CBOE, and familiarise yourself with them, the option symbols (also explained below), and with the number of ‘mouse clicks’ that you need to perform in order to download the data. This will prepare you well to act fast enough to download all the data you require within the same 15-minute interval window.
C39SN2 Financial Derivatives Coursework Project
Once the data is downloaded, you will need to do calculations based on this data and, therefore, will require extensive use of Excel. You will also need to repeat these calculations for different options, and hence automation of the calculations would help a lot. To automate the calculations, you are strongly advised to think carefully about the structure and organisation of your spreadsheet prior to implementation.
Assume a 365-day year throughout.
Main Requirement:
A report of 1500 to 2000 words in length (excluding figures, tables, references and appendix) that contains a response to the questions that feature under the two STEPS below. Your report should be stand alone and contain all what you want to show the reader and all what you are going to be assessed upon.
However, and for verification purposes (including the External Examiner as well as the identification of collusion or plagiarism) you are required to show how you performed the detailed calculations by submitting your Excel spreadsheet(s). The Excel sheet is to verify that you have done the calculations, but do not use it as a compliment to your Word report. Your Word report should be stand alone and should not refer the reader to the Excel sheet for further detail.
As noted above, there will be two separate submission links on Canvas: one for the Word file of the report, and one for the Excel Sheet. Please do not submit your Word report to the link for the Excel sheets, or vice versa, and make sure you name these files as instructed.
STEP 1
Step 1 Coursework Requirements
The requirements are:
Investigate (by calculating, checking and interpreting) whether the put-call parity holds for the actual market prices of both the European and the American options. Interpret the results (more emphasis and marks will be given to interpretation).
Calculate the difference between the actual market prices of the American and European options that have the same exercise price and maturity. Interpret the results (more emphasis and marks will be given to interpretation).
Calculate the theoretical Black and Scholes prices of all the selected European and American options and compare these theoretical values with the actual market prices of the options. Interpret any differences (more emphasis and marks will be given to the interpretation).
Guide to carrying out Step 1 Requirements
Downloading Option Data
(PLEASE access cboe during Chicago trading times – 8:30am to 3:15pm CET Chicago Time)
You will need to download prices and exercise prices for puts and calls. First read the section below and when you are ready to download the data login to the CBOE website www.cboe.com.
Downloading steps (see picture as a guide):
In www.cboe.com, click on ‘Data’ then ‘Quotes Dashboard’ and make sure you press the tab ‘Options’. The page should look like the picture above.
C39SN2 Financial Derivatives Coursework Project
In the entry panel next to ‘Search’ enter the symbol OEX for American options or XEO for European options, and press ‘Search’.
There are two main ways to download the data. The first is to download all the data they have on OEX or XEO options by using the ‘View Chain’ green button on the same page. At the bottom of the table you will be able to see a ‘Download CSV’ link that will download the entire table into an Excel readable file. The second method of downloading parts of the data for specific options only is to use the filters that appear in a ribbon to the left of the ‘View Chain’ button. You can choose the appropriate filer settings. For example, you can choose to select options of a certain volume, expiration type, option range (ITM, ATM or OTM), size, or expiration date. It is probably best to just download all options using ‘View Chain’ and then choose whichever ones you want to do the analysis on. But the filters are useful to investigate and to download ITM, ATM or OTM active options (see further instructions below on how and what options to choose).
You need to follow the above more than once: once to extract a table of OEX options, another to extract the same for XEO options, and yet again to extract the level of volatility of the S&P 100 index (by entering the symbol VXO or ^VXN in the Search button – see instructions below).
C39SN2 Financial Derivatives Coursework Project
Once you have all the data in Excel you can then pick and choose the options that you want to focus on in the analyses (specific exercise prices and preferably options that have some volume or open interest – here you can use the filters to help you narrow down this choice). Choose your options by using the matrix in the table below (under Choice of Options for Analysis ), which is not prescriptive but provided as a guide only.
Note that beside prices, you need to note the time you downloaded the data, in order to calculate the time left to maturity for these options, and the level of the S&P 100 index (i.e., the spot price of the index) at the time of your downloading the options data. These last two pieces of information appear towards the top of the table anyway, so it is good practice to copy the entire table together with the information that appears at the top of it, which also includes the value of the S&P100 index (spot price) at the time.
Choice of Options for Analysis
You need to consider pairs of put and call options. Each pair should have the same (or close) strike price and maturity. You need pairs of American-style (OEX) and pairs of European-style (XEO) options. For each exercise style choose at least three pairs: one in-the-money (ITM), one at-the-money (ATM), and one out-of-the-money (OTM). Do this such that American and European pairs that are at-the-money have the same (or close) time to maturity and exercise price. Do the same for in-the-money and out-of-the-money options. You should end up with a choice of options that roughly fit the description of the table below.
C39SN2 Financial Derivatives Coursework Project
RUBRIC
QUALITY OF RESPONSE NO RESPONSE POOR / UNSATISFACTORY SATISFACTORY GOOD EXCELLENT Content (worth a maximum of 50% of the total points) Zero points: Student failed to submit the final paper. 20 points out of 50: The essay illustrates poor understanding of the relevant material by failing to address or incorrectly addressing the relevant content; failing to identify or inaccurately explaining/defining key concepts/ideas; ignoring or incorrectly explaining key points/claims and the reasoning behind them; and/or incorrectly or inappropriately using terminology; and elements of the response are lacking. 30 points out of 50: The essay illustrates a rudimentary understanding of the relevant material by mentioning but not full explaining the relevant content; identifying some of the key concepts/ideas though failing to fully or accurately explain many of them; using terminology, though sometimes inaccurately or inappropriately; and/or incorporating some key claims/points but failing to explain the reasoning behind them or doing so inaccurately. Elements of the required response may also be lacking. 40 points out of 50: The essay illustrates solid understanding of the relevant material by correctly addressing most of the relevant content; identifying and explaining most of the key concepts/ideas; using correct terminology; explaining the reasoning behind most of the key points/claims; and/or where necessary or useful, substantiating some points with accurate examples. The answer is complete. 50 points: The essay illustrates exemplary understanding of the relevant material by thoroughly and correctly addressing the relevant content; identifying and explaining all of the key concepts/ideas; using correct terminology explaining the reasoning behind key points/claims and substantiating, as necessary/useful, points with several accurate and illuminating examples. No aspects of the required answer are missing. Use of Sources (worth a maximum of 20% of the total points). Zero points: Student failed to include citations and/or references. Or the student failed to submit a final paper. 5 out 20 points: Sources are seldom cited to support statements and/or format of citations are not recognizable as APA 6th Edition format. There are major errors in the formation of the references and citations. And/or there is a major reliance on highly questionable. The Student fails to provide an adequate synthesis of research collected for the paper. 10 out 20 points: References to scholarly sources are occasionally given; many statements seem unsubstantiated. Frequent errors in APA 6th Edition format, leaving the reader confused about the source of the information. There are significant errors of the formation in the references and citations. And/or there is a significant use of highly questionable sources. 15 out 20 points: Credible Scholarly sources are used effectively support claims and are, for the most part, clear and fairly represented. APA 6th Edition is used with only a few minor errors. There are minor errors in reference and/or citations. And/or there is some use of questionable sources. 20 points: Credible scholarly sources are used to give compelling evidence to support claims and are clearly and fairly represented. APA 6th Edition format is used accurately and consistently. The student uses above the maximum required references in the development of the assignment. Grammar (worth maximum of 20% of total points) Zero points: Student failed to submit the final paper. 5 points out of 20: The paper does not communicate ideas/points clearly due to inappropriate use of terminology and vague language; thoughts and sentences are disjointed or incomprehensible; organization lacking; and/or numerous grammatical, spelling/punctuation errors 10 points out 20: The paper is often unclear and difficult to follow due to some inappropriate terminology and/or vague language; ideas may be fragmented, wandering and/or repetitive; poor organization; and/or some grammatical, spelling, punctuation errors 15 points out of 20: The paper is mostly clear as a result of appropriate use of terminology and minimal vagueness; no tangents and no repetition; fairly good organization; almost perfect grammar, spelling, punctuation, and word usage. 20 points: The paper is clear, concise, and a pleasure to read as a result of appropriate and precise use of terminology; total coherence of thoughts and presentation and logical organization; and the essay is error free. Structure of the Paper (worth 10% of total points) Zero points: Student failed to submit the final paper. 3 points out of 10: Student needs to develop better formatting skills. The paper omits significant structural elements required for and APA 6th edition paper. Formatting of the paper has major flaws. The paper does not conform to APA 6th edition requirements whatsoever. 5 points out of 10: Appearance of final paper demonstrates the student’s limited ability to format the paper. There are significant errors in formatting and/or the total omission of major components of an APA 6th edition paper. They can include the omission of the cover page, abstract, and page numbers. Additionally the page has major formatting issues with spacing or paragraph formation. Font size might not conform to size requirements. The student also significantly writes too large or too short of and paper 7 points out of 10: Research paper presents an above-average use of formatting skills. The paper has slight errors within the paper. This can include small errors or omissions with the cover page, abstract, page number, and headers. There could be also slight formatting issues with the document spacing or the font Additionally the paper might slightly exceed or undershoot the specific number of required written pages for the assignment. 10 points: Student provides a high-caliber, formatted paper. This includes an APA 6th edition cover page, abstract, page number, headers and is double spaced in 12’ Times Roman Font. Additionally, the paper conforms to the specific number of required written pages and neither goes over or under the specified length of the paper.
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