Derivatives Management Annamalai MBA Solution 2023
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1. Cipla has a market price of Rs.890. The volatility on the share is 0.32; the risk – free interest rate is 5 percent. What would be the price of the call with a strike price of Rs.880, if the expiry date is 20 days ahead? Assume there has not been any dividend announcement.
2. You are given three call options on a stock at exercise price (k) of Rs 40, Rs.45 and Rs.50 with the expiration date in 3 month and the premium of Rs.4, Rs.2 and Rs.1 respectively. Show how the call options can be used to create a butterfly spread. Construct a table with different market prices and show how profit changes with stock price ranging from Rs 30 to Rs 60 for a butterfly spread.
3. You are a portfolio manager who has just been exposed to the possibilities of stock index futures. Respond to the following situations.
(a) Assume that you have the resources to buy and hold the stocks in the S&P 500. You are given the following data. (Assume that today is J anuary 1)
i) Level of the S & P 500 index = 258.90
ii) J une S&P 500 futures contract = 260.15
iii) Annualized Rate on T. Bill expiring J une 26 (expiration date) = 6%
iv) Annualized Dividend yield on S&P 500 stocks = 3%
v) Assume that dividends are paid out continuously over the year. Is there potential for arbitrage? How would you go about setting up the arbitrage?
(b) Assume now that you are known for your stock selection skills. You have 10,000 shares of Texaco in your portfolio (now selling for 38) and are extremely worried about the directi on of the market until J une. You would like to protect yourself against market risk by using the December S&P 500 futures contract (which is at 260.15). If Texaco’s beta is 0.8, how would you go about creating this protection?
4. What are various types of derivative instruments traded at NSE? What are various products available for trading in Futures and Options segment at NSE ?
Other Set
1. “Besides serving as a barometer of the economy /market, the index also has other applications in finance.” – Elaborate the application of index.
2. What are various types of derivative instruments traded at NSE? What are various products available for trading in Futures and Options segment at NSE?
3. You are a portfolio manager who has just been exposed to the possibilities of stock index futures. Respond to the following situations.
4. Give a detail note on commodity future markets in India and also explain its impact on Production and Prices.
2nd Set of Annamalai MBA Distance Learning
1. How the valuation of Interest Rate SWAP, Currency SWAP and FRN are made? Explain them.
2. What is a lower bound price of a 4 month call option on a non dividend paying stock when the stock price is 28 $, strike price is 25$ and risk free interest rate is 8% per annum.
3. Examine the risks in financial derivatives and suggest measures to minimise them.
4. Write a note on role of clearing house with special emphasis upon ‘delivery mechanism’ in futures market
