AFE6013-B   Risk Management and Derivates.

Group Coursework (25 pages maximum, including all tables and appendices. An annotated excel file including all the numerical formulae has to be submitted at the same time.)

Submission deadline:

  • Failure to submit your work by this deadline will result in a mark of 0%
  • The assignment must be submitted to the Canvas site for this module
  • You are advised to plan your work carefully and back-up your work. Computing problems will NOT be accepted as reasons for non-submission.

The assignment is an assessed piece of work that accounts for 30% of the total marks available for this module. Each member of group is expected to contribute equally to the whole project. The mark awarded to the submitted work is allocated equally to each member of a group, unless sound and fair cause justifies doing otherwise. The assignment is to be completed in groups. Each group should contain no more than 6 student members. Groups having less than 6 members should be able to function effectively and complete the work assigned, but clearly the distribution of work will be somewhat greater than with 6 students. Students enrolled on this module are required to form themselves into groups by self-selection. This should be completed before October 16th 2019.

The group membership has to be agreed by the students concerned and the names submitted through the CANVAS facility.

It is helpful to assign a group spokesperson that so any communications with me are directed through a single channel.

All students need to become fully acquainted with the University’s policy on plagiarism.

You need to submit the Excel file of calculations used in evaluating the various options, which has to be fully documented so the reader can readily understand the structure of calculations.


The assignment

  • Using the attached excel file as a guide estimate the binomial tree parameters for the monthly log-returns of each series.

See the excel file


  • Calculate the risk-neutral probabilities associated with the parameter estimates in part (a). You may assume a risk-free interest rate of 1.5% per annum. Comment.

Need to do part (a) to get to part (b).

Formulae needed are in the lecture slide added and the exam formula sheet.

Will need to be done in excel, can then be added in word with comments as evaluation.


Submission of Project

Only submit 1 copy of the assignment per group.

The submission has to adopt the following formatting conventions:

  • The work should be written in easy-to-read English using an academic style, and without journalistic hyperbole.
  • Pagination: each page is to be numbered consecutively from 1, except the first.
  • The first page is the title page and the second page is a contents page.
  • The title page has to contain the title, group membership and the word count.
  • The body of contents is to be sensationalized and numerically ordered.
  • Minimum font size is Times Roman 12 pt or equivalent. 1.5 line spacing is preferred.
  • Text is to be justified both left and right.
  • Tables and figures have to have an informative caption and be numerically labeled. If convenient, they are to be placed in close proximity to the relevant text, or if large, put into a separate section after the conclusions.
  • All external sources of information are to be cited using the normal citation style. Complete details of all citations are to be collected together in a section entitled “References”.
  • Equations such as formulas should be entered using an equation editor, and numbered. Complex derivations should be assigned to an appendix.
  • The complete work is to be organized in the following way:

My Availability

You are always welcome to contact me for advice and guidance. The most effective way of contacting me is through email:

If the group is facing any irresolvable issues, then the group spokesperson should, initially, use email to make me aware of the matter, and I will attempt to answer the issue through email. If the group wishes to talk to me personally, this should be arranged through email.

If work problems within a group arise and the group dynamics sour, then one or more group members should contact me as soon as practically possible for help. In extreme situations where a group member has not contributed to the completion of the assignment, or whose contribution has been less than fair, then I reserve the right to award that individual a mark below the group mark. 


In addition to the recommended text-books for the subject, you may wish to consult the following references:

Black, F. and M. Scholes (1973). The pricing of options and corporate liabilities. Journal of Political Economy 81 637-654.

Cox, J. C. and S. A. Ross (1976). The valuation of options for alternative stochastic processes. Journal of Financial Economics 3 145-166.

Cox, J. C., S. A. Ross and M. Rubinstein (1979). Option pricing: A simplified approach. Journal of Financial Economics 7 229-263.

Rendleman, R. J., Jr. and B. J. Bartter (1979). Two-state option pricing. Journal of Finance 34 1093-1110.

Smith, C. W. (1976). Option pricing : A review. Journal of Financial Economics 3 3-51.

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