MAF308 Derivatives and Fixed Income Securities 迪肯 代写
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MAF308 Derivatives and Fixed Income Securities 迪肯 代写
Deakin University
Department of Finance
MAF308 Derivatives and Fixed Income Securities
Trimester 2, 2017
Assessment Task 2: Written Assignment
DUE DATE AND TIME 04 September, 2017 11:59PM (AEST)
PERCENTAGE OF FINAL GRADE 30%
HURLDE DETAILS Nil
Learning Outcome Details
Unit Learning Outcome (ULO)
On Successful Completion of this assessment, students can:
Graduate Learning
Outcome
ULO1‐ Develop and demonstrate knowledge of interest rate
measurement, fixed income securities, forwards, futures, and options
1
ULO2‐ Justify the mechanics of no arbitrage and apply to real world
situations
4, 5
ULO3 ‐ Apply derivatives securities to risk management; 5
ULO4 ‐ Develop and demonstrate effective communication skills, including
the ability to clearly explain graphs, data, statistics and algebra, in a
manner appropriate for finance peers and academics.
1, 4
Requirements
You can choose to do this assignment individually or as a member of a group. Each group can have a
maximum of 3 members and all members from the same group will receive the same mark.
Submission
Each group (including "group" with only one member) needs sign‐up via CloudDeakin from 28
July 2017 to 25 August 2017.
Make sure you and your group partner register correctly. If you make a mistake or wish to
change the group, please email the details (e.g., name, student ID number, wrongly registered
group number) to Dr Peipei Wang (peipei.wang@deakin.edu.au).
Do not join someone’s group unless you have prior permission to do so. You will be removed
from a group at the request of the other student!
You may work with Word or other text edit software, but you MUST convert your final report
to a PDF file.
Each group needs to lodge one electronic copy (final report in .pdf) of the assignment on the
unit site. You are required to submit an ELECTRONIC COPY ONLY. Each group is required to
submit only one document, which is the final report. Please don't submit your working
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spreadsheet separately. All information should be combined into one document, which is
your final report.
Marking is based on the submitted final report (.pdf) only! This means that if you calculate
correctly in the spreadsheet but copy incorrectly into the final report, you will lose all
associated marks, so please check carefully.
There is no official assignment cover sheet. Before submitting your assignment report, read
the plagiarism and collusion declaration section in the assignment submission dropbox.
You must keep a backup copy of every assignment you submit, until the marked assignment
has been returned to you. In the unlikely event that one of your assignments is misplaced, you
will need to submit your backup copy.
Any work you submit may be checked by electronic or other means for the purposes of
detecting collusion and/or plagiarism.
When you are required to submit an assignment through your Cloud Unit Site, you will receive
an email to your Deakin email address confirming that it has been submitted. You should
check that you can see your assignment in the Submissions view of the Assignment dropbox
folder after upload, and check for, and keep, the email receipt for the submission
Late submission
A request for a time extension must be made in writing to the Unit Chair, Dr Peipei Wang
(peipei.wang@deakin.edu.au) at least two days before the due date. This request must include
documentary evidence, such as medical certificate.
Please note: since students will have several weeks to complete this assignment and are expected
to make good use of this time, being unfit on the due date or just one or two days prior to the due
date, may not be an acceptable ground to get an extension.
Extensions can be granted for documented serious illness (not just on the day the assignment is due!)
or for compassionate reasons under extenuating circumstances. The unit chair can ask to see how
much work has been completed before granting an extension. All extension applications have to be
sent to the unit chairs before the due date.
Work or holiday reasons are NOT grounds for an extension – you are expected to manage these issues
as part of your studies. You are strongly encouraged to start early and to continually backup your
assignment as you progress. Computer crashes or corrupted files will NOT be accepted as valid reasons
for an extension of any length.
For further information about Special Consideration, visit
http://www.deakin.edu.au/students/assessments/special‐consideration
Penalties for late submission
In accordance with University’s policy, the following marking penalties will apply if you submit an
assessment task after the due date without an approved extension:
5% will be deducted from available marks for each day up to five days, and work that is submitted
more than five days after the due date will not be marked. You will receive 0% for the task. 'Day' means
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calendar day for electronic submissions. The Unit Chair may refuse to accept a late submission where
it is unreasonable or impracticable to assess the task after the due date.
Turnitin
Students are strongly recommended to check originality through Turnitin, prior to submitting
the final assessment. For more information about Turnitin and how to check for originality,
refer to the Deakin website information at:
http://www.deakin.edu.au/learning/cloud‐learning/clouddeakin/guides/assessment/turnitin‐
plagiarism‐and‐grademark
Once you upload your paper as a submission, you can access the originality report. Use the
feedback to revise and improve your document. You can still make changes to the document,
as the dropbox accepts further submissions until the due date (each attempt overrides
previous attempts).
All submissions will be checked for potential plagiarism using Turnitin© software. If plagiarism
is suspected, the assignment will automatically be referred to the Faculty’s Academic Progress
Committee.
Referencing
You must correctly use the Harvard style of referencing in this assessment.
Academic Integrity, Plagiarism and Collusion
Plagiarism and collusion constitute extremely serious breaches of academic integrity. They are forms
of cheating, and severe penalties are associated with them, including cancellation of marks for a
specific assignment, for a specific unit or even exclusion from the course. If you are ever in doubt
about how to properly use and cite a source of information, consult your lecturer or the Study Support
website http://www.deakin.edu.au/students/study‐support/referencing
Plagiarism occurs when a student passes off as the student’s own work, or copies without
acknowledgement as to its authorship, the work of any other person or resubmits their own
work from a previous assessment task.
Collusion occurs when a student obtains the agreement of another person for a fraudulent
purpose, with the intent of obtaining an advantage in submitting an assignment or other work.
Can I recycle my own work?
Deakin students are not permitted to recycle their assessment work, or parts of assessment work,
without the approval of the unit chair of their current unit. This includes work submitted for
assessment at another academic institution. If students wish to reuse or extend parts of previously
submitted work, then they should discuss this with the unit chair prior to the submission date.
Depending on the nature of the task, the unit chair may permit or decline the request.
Building evidence of your experiences, skills and knowledge (Portfolio)
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Building a portfolio that evidences your skills, knowledge and experience will provide you with a
valuable tool to help you prepare for interviews and to showcase to potential employers. There are a
number of tools that you can use to build a portfolio. You are provided with cloud space through
OneDrive, or through the Portfolio tool in the Cloud Unit Site, but you can use any storage repository
system that you like.
Remember that a Portfolio is YOUR tool. You should be able to store your assessment work,
reflections, achievements and artefacts in YOUR Portfolio. Once you have completed this assessment
piece, add it to your personal Portfolio to use and showcase your learning later, when applying for
jobs, or further studies. Curate your work by adding meaningful tags to your artefacts that describe
what the artefact represents
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Assignment Task2
This Written Assignment contains 3 parts: Part A, Part B and Part C. The Assignment carries 100 marks
and is converted to equal 30% of your total assessment in this unit. Marks have been allocated for
each part and it will help you to self‐evaluate after finishing the assignment. If you receive 80 marks
out of 100 marks, it is equivalent to 24 marks out of 30 marks and contribute 24 marks to your total
assessment in this unit.
The word limit is set for discussion‐type questions. – Be succinct: the fewer the better. Please don’t
misinterpret this: if you write nothing, your work will be awarded zero. Your answer can exceed the
word limit, but please consider what value the extra words add before you submit your assignment.
Do you really need to write such a long answer?
Part A: Bond Pricing and Duration (25 Marks)
Develop a spreadsheet in Excel that prices Australia Government Bond “3.25% Treasury Bonds due
21 April 2025”, the term sheet is provided at Appendix 1.
Working spreadsheet needs to include:
Inputs
o Day convention
o Annual Coupon Rate
o Yield to Maturity (Annualized)
o Number of Payment per year
o Face Value (PAR)
Outputs (determined by changing inputs)
o Discount Rate per period
o Coupon Payment
o Bond price
Question A1: The yield to maturity of above particular bond is 1.858% per annum annually
compounding on 11/7/2017. What is the market price of this bond on 11/7/2017? (Or equivalently to
ask, how much do you need to pay to get this particular bond on 11/7/2017?) (10 Marks)
Spreadsheet template for A1:
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Note: (1) You can use the above template to organise your calculations but you are free to create your
own style. Please note, the numbers shown in the above template have nothing to do with the answer
of your task Part A. You need to read your task carefully and fill in the correct one for each
corresponding label.
(2) If you are familiar with Excel functions, you may notice there are Excel built‐in functions, e.g.,
“PRICE” which allows you to calculate bond price directly. You are free to use any Excel built‐in
function to solve your problem as long as you use it correctly.
(3) Excel built‐in function “YEARFRAC” is recommend to be used to find “number of years” between
two dates. Please check following link for help of this function: https://support.office.com/en‐
us/article/YEARFRAC‐function‐3844141e‐c76d‐4143‐82b6‐208454ddc6a8.
You need to cut and paste your table to show the calculation procedure. Specifically, you’re
encouraged to provide all formulas explicitly to show how you get the specific number, however you
just need show one or two formulas for the same type of calculation. For example, from the above
template, cell 18C, 18D, 18E, 18F, ⋯ use the same type of calculation, you just need to show one or
two of them, for example,
18C ? ? ??.???????.???? ? 0.9949
18D ? ? ??.???????.???? ? 0.9857
Showing your working process explicitly will help you to get partial marks when your numeric answer
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is wrong but you can demonstrate correct working logic. Similarly, if you use Excel built‐in function,
you need to explicitly show input parameters of the function which allows you to get the specific
number.
Question A2: Construct a graph for the above bond showing the relationship between bond price (Y‐
axis or vertical axis) and yield‐to‐maturity (X‐axis or horizontal axis) for a range of yield‐to‐maturity
(annualized) of 1.0% through 3.0% with step size of 0.1%. All yields are annualized and yearly
compounding. Discuss the relationship between bond price and yield‐to‐maturity. (100 – 150 words)
(10 Marks)
Question A3: Compute the duration of the above bond on 11/7/2017. Using duration relation, explain
how sensitive the above bond is to interest rate change. (200 words) (5 Marks)
Spreadsheet Templet:
Note: (1) You can use the above template to organise your calculations but you are free to create your
own style. Please note, the numbers shown in the above template have nothing to do with the answer
of your task Part A, you need read your task carefully and fill in the correct one for each corresponding
label.
MAF308 Derivatives and Fixed Income Securities 迪肯 代写
(2) If you are familiar with Excel functions, you may notice there is an Excel built‐in function i.e.,
“DURARTION” which allows you to calculate bond duration directly. You are free to use any Excel
built‐in function to solve your problem as long as you use it correctly.
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Part B: Hedge use Futures and Derivatives Disaster (50 Marks)
Question B1: For this question, you will need to access resources from the library and/or internet, to
investigate how Futures can be used to hedge or speculate. (At least 2 citations are required to
support your investigation. 500 words) (15 Marks)
Question B2.1: Metallgescellschaft AG or MG is a German conglomerate. They have several
subsidiaries in its "Energy Group", with MG Refining and Marketing Inc. (MGRM) in charge of refining
and marketing petroleum products in the U.S. It was revealed publicly that it recorded a losses of
approximately $1.3 billion at year‐end 1993 due mainly to cash‐flow problems resulting from large oil
forward contracts it had written (Mello and Parsons 1995).
What happened was that MGRM committed to sell certain amounts of petroleum every month for up
to 10 years at prices fixed in 1992 (i.e., MGRM has written oil forward contracts). To hedge their
position, during the latter half of 1993, MGRM established long energy futures (and swaps) positions
equivalent to nearly 160 million barrels of oil, positions that would benefit handsomely if energy prices
rose (Edwards 1995). Instead, energy prices (crude oil, heating oil, and gasoline) fell sharply during the
latter part of 1993, causing MGRM to incur huge unrealized losses and margin calls on its derivatives
positions. An important aspect of MGRM’s hedging strategy is that its derivatives positions were
“stacked” in short‐dated futures (and swaps) that had to be rolled forward periodically to maintain
the hedge (Mello and Parsons 1995). MG's losses in the futures (and swaps) markets have raised
questions about whether MG was really hedging or speculating. Please check the following two
reading references and internet resource for this famous case (i.e., google “Metallgescellschaft AG”)
and answer the following questions.
Give your own (informed) opinion on whether you felt that MG was hedging or speculating and justify
your stance using appropriate literature to support your argument. (300 words) (10 Marks)
(Note: the conclusion of hedge or speculation itself is meaningless for this question, your discussion
should contain your view/understanding on the boundary of hedge and speculation, and the risk
involved in hedge or speculation, in the context of the case of Metallgescellschaft AG.)
Question B2.2 Hull (2016) claims that for the purpose of hedge using futures, the “choice (of contract)
has two components: 1. the choice of the asset underlying the futures contract; 2. the choice of the
delivery month”(p.73).
In reference to the information from the textbook cited above discuss, in general terms, how
underlying assets mismatch (e.g. the asset you want to hedge is jet oil, but because there is no jet oil
futures, you can use heating oil futures) and maturity mismatch (e.g. the maturity of the futures is
different from, usually shorter than, the maturity you need) impact hedge results. (500 words) (10
Marks)
Question B2.3 After you have discussed this in general terms, you are to discuss how maturity
mismatch is critical in the case of Metallgescellschaft AG. (400 words) (15 Marks)
Reading Reference:
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(1) Culp, Christopher L. and Miller, Merton H., 1995, Metallgesellschaft and the Economics of
Synthetic Storage, Journal of Applied Corporate Finance, Vol. 7.4, P62‐76
(2) Mello, Antonio S. and Parsons, John E.,1995, Maturity Structure of a Hedge Matters: Lessons
from the Metallgesellschaft Debacle, Journal of Applied Corporate Finance, Vol. 8.1, P106‐120
Part C: Options (25 Marks)
The full list of ASX listed companies can be found from the following link:
http://www.asx.com.au/asx/research/listedCompanies.do
Choose one company (per group) as the objective for the following questions. You can collect
information on stock and options from:
http://www.asx.com.au/asx/markets/equityPrices.do
Note: You must be able to access both the stock and option prices. If you randomly pick a company,
and cannot find its option price, discard it and pick another one.
Question C1: For the company you choose, collect the stock (last) price, and liquid option prices, and
include the date you collected these prices.
Call options have the same strike price but 2 different maturities
Put options have the same strike price but 2 different maturities
Call options have the same maturity but 3 different strike prices
Put options have the same maturity but 3 different strike prices
For each option, collect expiry date, call or put identifier, exercise price or strike price, bid price, offer
price, last price, volume, and open interest. Present this information in table format. (10 Marks)
Question C2: Explain how option prices vary with different strike price and different expiration dates.
Provide your reasoning rather than simply saying, for example, strike price increases, and call option
price decreases. (300 words) (15 Marks)
Total: 25 + 50 + 25 = 100 Marks
Reference:
(1) Edwards, Franklin R. 1995, Derivatives can be Hazardous to your Health: The Case of
Metallgesellschaft, Derivatives Quarterly, Spring, P8‐17
(2) Mello, Antonio S. and Parsons, John E.,1995, Maturity Structure of a Hedge Matters: Lessons
from the Metallgesellschaft Debacle, Journal of Applied Corporate Finance, Vol. 8.1, P106‐120
(3) Hull, John C. 2016, Fundamentals of Futures and Options Markets, Global Edition (8e), Pearson
Higher Ed USA, P73
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Appendix 1: Term Sheet for 3.25% Treasury Bonds due 21 April 2025
MAF308 Derivatives and Fixed Income Securities 迪肯 代写
