Intro to Financial MathematicsFinancial Mathematics1代写 UBMISSION DEADLINE: 5:00 PM on Sunday November 18, 2018 INSTRUCTIONS TO CANDIDATES1.The assignment comprises1st SEMESTER 2018/19Group Assignment ONESUBMISSION DEADLINE: 5:00 PM on Sunday November 18, 2018 INSTRUCTIONS TO CANDIDATESTheassignment comprises 15% weight of the final module mark.Writea report about the performance of hedging strategies (details and guidelines attached).Thereport must be written in English, associated with the supportive excel files.Universitypolicy on late submission will be followed.IntroductionFinancial Mathematics1代写 This part of the course assessment is worth 15% of the final mark for the course, and consists of a take‐home group course assignment that will be worked on and submitted jointly by the participants with the maximum number of FIVE in the course.This project aims to practice your skills in hedging market risk by constructing a portfolio involving futures. The relevant information about the securities prices can be founded through Yahoo (http://finance.yahoo.com) or WIND terminal (accessible at Library). In this assignment, you were provided with the following scenario.SCENARIO:Financial Mathematics1代写 Suppose you are working on a fund of $10 million which invests in a portfolio of the S P500component stocks, e.g., Apple, HP, BP and etc. This portfolio has been constructed since November 1st, 2017. On May 31, 2018, you were worried about the coming tariff war between US and China and decided to set up a hedging strategy to protect your fund by using the S P500 index futures for the following four months, e.g., June 1, 2018 to October 12, 2018, and so the trading position in the futures contract would be closed on October 12, 2018.Financial Mathematics1代写You are required to construct an optimal hedging position in the S P500 index futures, and analyze its performance during the period from June 1, 2018 to October 12, 2018.1)All the securities in your portfolio are selected from the component stocks of the S P500 index, which was constructed on November 1st,2017.2)The securities are selected from different industries, e.g., bank industry, media industry, and manufacturing industry and etc.Financial Mathematics1代写3)Thenumber of stocks in your portfolio must be between 6 and 20, g., 6 ≤ n ≤ 20.4)The daily returns of all the securities in your portfolio are needed, e.g., a time series of daily returns from November 1, 2017 to October 12,2018.5)Thedaily risk‐free rates (e.g., 1‐month T‐bill rates in US) for the same period are needed.6)The S P500 index futures that matures on December 2018 is used for the hedging purposeandthe time series of daily close prices from November 1, 2017 to October 12, 2018 is  Note that each futures contract is for delivery of $250 times the index.7)The dividend yield on the S P500 index is 1% per annum.Requirements:Financial Mathematics1代写 I.Given that the securities in your portfolio are only individual stocks (namely, excluding the equity index), you apply the Capital Asset Pricing Model (CAPM) to complete the following tasks(20%):a)Provide the descriptive statistics of the individual stocks, your portfolio and the marketportfolio(S P500 index) in terms of excess return, standard deviation and  Plot the time series of each of these (daily) returns.b)Estimate the beta for each individual stock in the portfolio.c)Estimator the beta for your portfolio.Financial Mathematics1代写d)Plot all the betas in b) and c) in the space of (X=beta, Y=expected return) to confirm the SecurityMarket Line (SML). Note that the beta of the market portfolio is equal to note.II.Suppose that on May 31, 2018, you develop a hedging strategy for your portfolio constructed in I) by using the S P500 index futures that matures on December 2018, and close your futures trading position on October 12, 2018. You then apply the optimal‐hedging‐ratio approach to complete the following tasks(60%):e)Develop the hedging strategy with the minimal variance hedging ratio which is estimatedbasedon the time series of price changes between the portfolio and the index futures.f)Develop the hedging strategy with the optimal hedging ratio which is estimated using the CAPMmodel;g)Suppose that the S P500 index and the close price of the December index futures are 2705.25 and 2715.25 on May 31, 2018, respectively. Analyze the total value ofhedgingposition on October 12, 2018 by following the strategies in e) and f), including the gain/loss on the hedge when the S P500 index and index futures fall into the following scenarios:Financial Mathematics1代写

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