Reference no: EM132273324
Financial Derivatives Trading: Options, Futures & Swaps
Part A
[1] According to the article of FT.com entitled ‘Easyjet delayed by abnormal levels of currency disruption' (25.01.2017), ‘'EasyJet said the continued weakness of the pound since the UK voted to leave the EU, plus rising fuel costs would have an adverse impact of £105m in the full year to September 30 - some £35m worse than previously expected. Analysts cut their full-year pre-tax profit targets from a consensus £418m to a range of £376m-£406m''. ‘'It insisted it had hedged between 74 and 86 per cent of fuel and currency costs for the next 12 months''.
Based on the information above develop a concrete risk management framework based on financial derivatives and advancedhedging strategies which will aim to the protection of Easyjet from its exposure to fuel and currency costs. Please use real data to build the risk management framework.
Your answer should be presented in a professional way (max: 2,500 words).
[2] Describe the contribution of financial derivatives in triggering the 2008 financial crisis. (max: 1,000 words)
Part B
[1] The stock price of EasyJet (EZJ: LSE) is currently 1,344 (GBX). In accordance with analysts' forecasts at the end of one month it will be either 1,389 (GBX) or 1,312 (GBX). If we assume that risk-free rate (UK Gilt 10 Year Yield) is 1.02% per annum with continuous compounding calculate the value of one-month European call option with strike price of 1,330 (GBX).
[2] The stock price of GlaxoSmithKline (GSK: LSE) is currently 1,690 (GBX). In accordance with analysts' forecasts at the end of six month it will be either 1,625 (GBX) or 1,715 (GBX). If we assume that risk-free rate (UK Gilt 10 Year Yield) is 1.02% per annum with continuous
compounding calculates the value of six-month European put option with strike price of 1,690 (GBX).
[3] An investor owns 51,750 shares of Unilever (ULVR: LSE). The shares are currently priced at 4,262.50 (GBX). A call option with a strike price of 4,300 (GBX) is selling at £1.50 and has a delta of 0.69. What is the number of call option is necessary to create a delta-neutral hedge? Will the number of call options written for a delta-neutral hedge increase or decrease if the stock price falls?
[4] A financial institutions has just sold 1,000 seven-month European call options on the Japanese yen. Suppose that the spot exchange rate is 0.80 cent per yen, the exercise price is 0.81 cent per yen, the risk-free rate is in the US is 8% per annum, the risk-free interest rate in Japan is 5%, and the volatility of the yen is 15% per annum.
Calculate the delta, gamma, vega, theta, rho of the financial institution's position and provide interpretation of the results (max: 300 words)
How was the problem addressed or resolved
: What was the problem/situation? What was the issue? Who was involved? What was their role and responsibilities? How was the problem addressed or resolved
|
The recent scandals concerning product contamination
: How should IKEA respond to some of the recent scandals concerning product contamination, sourcing, working conditions, and product safety?
|
Strategic alignment-specific project objectives
: Strategic Alignment: Specific project objectives, aligned to specific organisational goals
|
Describe product ideation model or methodology
: Research and describe a product ideation model or methodology.
|
Describe the contribution of financial derivatives
: Calculate the delta, gamma, vega, theta, rho of the financial institution's position and provide interpretation of the results (max: 300 words)
|
Series of processes performed for conversion
: Again, recall that our operations definition is the series of processes performed for conversion of inputs to outputs that creates value.
|
Attributes that make vision meaningful to stakeholders
: Describe the attributes that make a vision meaningful to stakeholders. Discuss why a vision may need to change.
|
Write the cost-revenue and profit function for production
: Write the cost, revenue, and profit function for the production and sale of q bottles.
|
How much have ignoring technology position and effects
: How much have ignoring technology's position and effects that lead us in new directions been problems in our educational and leadership institutions?
|