Need excel support mostly.

Assignment: 1
Future Pricing
a.) Returns after one year:
· Given amount $20 million for the portfolio
· 1 Year maturity
· Dividend is zero
· Portfolio Beta is equal to 1
· S&P futures currently trading at 1000, contract size is 250
· Formula for measuring the hedging strategies, we have used
· Targetbeta-Currentbeta)*PortfolioValue/(Indexprice*ContractSize)
· After computation of Formula, we have found that for this portfolio we need to sell 80 contracts of S&P.
· We will gain of 5% (Risk free rate) at any S&P level either index expires at 800 or 1350.
b.) Performance of the portfolio will not change if we hedge the portfolio via Spot Price (see excel)
c.) Proper hedging will safeguard you from any volatile situation (follow excel attached) if the index finishes 500, then outcome will be the same as it finishes at 2000 level after 3 years ($2,31,52,500) because of the hedging was perfectly executed.
d.) Quarte 1 to 4 will give same outcome (follow excel)
e.) Futures over Forward:
· Futures are move standardized.
· Futures settle Daily which means Futures are very flexible.
Forward Over Futures:
· Forward: Investor can carry forward if you don't have enough capital until after the initial settlement. Flexibility of payment, in future contract buyers need to pay off the balance instantly for execution of contracts while in Forward, as per the understanding agreement can modify the payment into later days.
· Very simple to set up.
Assignment 2
Swap Pricing
See Excel Attached
Assignment 3
Binomial Model
Binomial option pricing model is a risk-neutral system designed to evaluate path-dependent options such as American options. In the binomial formula, the actual value of the option is proportional to the present value of the probability-weighted possible option payouts. Binomial model used for the correct valuation of Option.
Features:
· a risk-neutral probability approach.
· Delta Hedging or Risk-free Portfolio approach.
· Replicating portfolio approach.
For instance, consider a call option, an option that grants the holder the right to buy the underlying (Stock, bond)
Where, S = current Price
X = Exercise Price
For any moment in time, the underlying will have two price movements: either upward or downward. In case of up move, the value of new price will be S plus(+) to S is called the up-factor u. Similarly, in the event of a downturn, the percentage of the current price S-to-S is considered the down-factor D.
· Upper price movement of stock will be considered as (us)
· Lower price movement of stock will be considered as (ds)
Value of option = {(Cu*P) + Cd (1-p)}/ R
Whereas,
P = Risk probability
Cu = Profit earned via up movement
Cd = Profit earned via down movement
R = Discounting Factor
Binomial Tree
(P) is name of the line attaching Exercise price and Price Up. Price (UP) Cs
(1-P) is the name of second line.
Exercise Price
Price down Cd
SR = Current price*discounting factor
SR = (us*p) + (ds*(1-p))
SR = (us*p) + ds-ds*p
SR-ds = (us*p) – (ds*p)
SR-ds = P(us-ds)
P = (SR-ds)/(us-ds)
Risk neutral probability (P) = (R-d)/(u-d)
We will use the Risk neutral probability formula to get the probability value and afterwards we will use option formula to get the current price of the options.
Example:
Current Market Price: $500
Exercise Price: $510
Period: 1 year
Risk free rate: 10% per annum
Option: Call option
Price on maturity, upper price = $600
Lower price = $400
Calculate value of option as per Binomial model.
Value of...