FIN B379F Risk Management for Financial Markets and Products Assignment 2

  • May 16, 2021

Assignment 2

Date Due: 17 May 2021

Weighting: 25% of the course grade

Assignment 2 (100 marks) Part A

You are employed by ABC Company (ABC). One day, your supervisor comes to you and tells you that he has done a complete research on many market risk factors, and he believes that the market will be going down significantly by the end of the year. He then asks you to recommend 2 different trading strategies with using various financial products to take advantages on this market forecast. The strategies should be with an objective to earn an absolute return or to minimize losses.

You are expected to explain your investment strategy ideas, including but not limited to:

  1. What are the financial products used in each of the strategies? Describe their characteristics such as the product cycles and their payoff structures. You may illustrate the details using diagrams.
  • Explain in details how the strategies you recommended can achieve the goals. You may illustrate the ideas using diagrams.
  • Explain, if any, the pros and cons of using your strategies. You may illustrate the ideas using diagrams.

Assume your supervisor takes your advices and executes the strategies recommended by you (Treat the executions of the 2 recommended strategies as 2 separate scenarios). At the year end, the market does not drop as expected. It performs extremely well. Your supervisor is worrying about the positions taken and he asks you to summarize the performances of each trading strategy (for both scenarios).

You are expected to describe the performances of your strategies with the fact that the market is going to a direction which is not as expected. Did your choices end up resulting in a huge loss of the company?

Part B

Source a real case which is related to trading derivatives or other financial products. Describe the situations and the investment strategies used in details, and provide your own comments on the case.

Each student is required to submit a report of 1500 words by the due date.

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