Choose a derivative product among the following: Bond Options, Cap Options, Floor Options, Swap options.
PART A Describe the payoffs to the product, and discuss how different parameter values result in changes in the price of the option using the DerivaGem software. [50 marks]
PART B Explain potential uses for the option paying particular attention to its suitability in a hedging and/or speculative environment. [50 marks]
Your report should contain no more than 1,000 words (including references).
YOU NEED TO HAVE A SHORT REFERENCE LIST AT THE END OF THE DOCUMENT YOU HAVE SUBMITTED.
YOU DO NOT NEED TO SUBMIT THE EXCEL FILE WITH THE DERIVAGEM DATA, BUT YOU DO NEED TO SUBMIT SNAPSHOTS OF THE EXCEL FILE USED. SUCH SNAPSHOTS DO NOT COUNT FOR THE LIMIT OF 1,000 WORDS.
FOR PART A, YOU NEED TO DISCUSS THE OUTPUT OF THE DERIVAGEM SOFTWARE AS YOU CHANGE THE VALUES OF SOME OF THE PARAMETERS. YOU CAN CHOOSE WHAT PARAMETER VALUES TO CHANGE.
You can download for free DerivaGem at the link:
Please choose the file called DG201.XLS and load it to excel.
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