Course Project for Economics of Derivatives 646
Johns Hopkins
University
This assignment is to count for 25% of the overall course
grade
if it is accepted. Students may, either individually or in groups of 2
or 3, work on any one of the (mostly) spreadsheet-based projects
described below. Students should sign up by email to the course
instructor (either as individuals or in groups) for one of the projects
listed below on or before the end of the second week of the semester.
Groups made up of one, two
or three students will list each of their names together in this email
to the instructor, and, if their project proposal is accepted, will
receive a confirmation from the course instructor. The projects
listed below are offered on a “first-come, first-serve” basis; that is,
no more than a single student (or group) will be permitted to work on
any given project unless otherwise noted below (that is, there are some
exceptions). Students must inform the instructor by the end of the second week of the semester of their
intent to complete the project and whether they intend to do so in a
group along with that group member or members, if any, and subject to
the limitations discussed above. Please inform the instructor as soon
as possible if you change your mind about doing a project so that
another student group might be able to choose it prior to the project
selection deadline.
Students should not submit projects that have been or will be submitted
in other courses. Students who wish to discuss customizing their
own projects may negotiate terms of this other project type with
the course instructor, who should approve it before work
commences. The project will be due on the last day of the semester as
noted in the Course Syllabus.
If applicable, students are expected to develop
"user-friendly" and entirely original spreadsheet files of
professional
quality capable of performing one of the tasks listed below (or a
satisfactory alternative as discussed with the instructor). The
selected file should be original and not have been used before in any
other class, and not a file adapted from one on the Internet or from
another project. The spreadsheet files should include appropriate
documentation (often instructions within the spreadsheet will suffice),
User-Defined-Functions, VBA code and/or macros as is necessary to run the
file
in a very user-friendly setting. Students should discuss their projects
with the course instructor, particularly students not selecting one of
the sample projects listed below. Students are encouraged to assist
each other, to test each others' programs and to "work out bugs" in
each others' programs. The spreadsheet files should be usable in
Excel from MS Office 2007 or MS Office 2022. I emphasize that the package
should be user-friendly with detailed on-screen instructions, macros
and/or visual basic routines as necessary to ensure this. The project
should include adequate documentation for its use by anyone familiar
with the analytical technique and the financial problem. It should be
assumed that the user has no familiarity working with the group's
spreadsheet and will not remember any verbal instructions given by
students.
As always, do be aware of and follow all AAP and JHU rules, policies
and guidelines concerning all assignments. In all cases, students
should carefully cite any work, paper, book, article, Internet site,
electronic communication or software, whether published or unpublished,
that was consulted or otherwise used as a reference for their own
work. Any material that was copied or paraphrased into a
student’s work must be appropriately footnoted (end-noted or
otherwise cited) along with appropriate publication or other details.
Sufficient information should be provided in the citation for the
instructor or other reader to access the referenced material as easily
as possible. Any non-written materials (e.g., oral communication,
television, etc.) must be cited as well. Appropriate style manuals can
be consulted for citation style. All projects are to be considered
to be independent projects, completed without assistance of others
except for the course instructor, and members of the student's project
group, though outsiders including other students may be used to test
the project. Authors of any written material should take great care in
ensuring that their papers are well-written and conform to appropriate
style and Institute academic honesty guidelines. Students should not
copy code or other material into their files from outside sources.
Groups and their members should not collaborate or share work or
information with other students and groups in the preparation of this
project, though, of course, students working together in a group should
collaborate with other members of their group. And again, students may
use outsiders to test and comment on the usability of their projects.
Projects
1. Options Analysis in a
Binomial Environment
The user of this package should be able to employ this package to value
plain vanilla options (European and American, calls and puts) on a
stock or other security as the instructor approves (both with or without
dividends payable as frequently as quarterly) in a binomial framework
(up to 100 time periods), and most importantly, determine implied
variances. Early exercise opportunities should be identified where
relevant. The package should work with calendar time inputs and "number
of days" (e.g., T and td). Such a
package can be very useful for trading American options, particularly
puts, as well as calls on dividend-paying stocks. The project should
incorporate early exercise features as well. Make
certain that you are at least marginally competent to use
spreadsheets, and User Defined Functions and/or VBA can be helpful as
well. These latter
parts can be remarkably simple to accomplish. If you are clueless now,
have
a look at the Introduction to VBA on the course web site or one of the
many such introductions online. You might be
able to create your own fundamental VBA programs to do something
useful
within a half hour. There are plenty of web sites that will answer
your
questions when you have them. If you are clueless
now, have a look at the Introduction
to VBA page on the course web site. There are plenty of web
sites that will answer your questions when you
have them.(2 Groups Maximum - This particular project is
usually subscribed to within a day or maybe a couple of days)
2. Derivative Securities
Package
The user of this friendly package should be able to perform
relevant valuation and hedging calculations on one or more types of
non-plain vanilla derivative securities (including exotic options such
as Lookbacks or Asians, compound options and CDS's or other swaps, but
excluding plain vanilla options) to be determined jointly by the course
instructor and the student. You must obtain approval from
the instructor before proceeding. After doing so and confirming with
your instructor, pick an exotic option or swap contract series
that interests you (e.g., lookback, Asian, chooser, etc.). Make
certain that you are at least marginally competent to use VBA. This
part is remarkably simple to accomplish. If you are
clueless now, have a look at the Introduction
to
VBA page on the course web site. You might be able to create
your own basic VBA programs to do something useful within a half hour.
There are plenty of web sites that will answer your questions when you
have them. Learn the Greeks for plain vanilla options and apply your
knowledge appropriately to the set of exotic options or swaps that you
select. (3 Groups Maximum)
3. Monte Carlo Simulation
The user of this package should be able to perform a Monte Carlo
Simulation to make particular types of derivatives-based valuation and
hedging decisions. Examples of applications can include capital
budgeting decisions involving real options analysis, American options
valuation, path dependent options valuation, constrained optimal
portfolio weights computations (with constraints on minimum and maximum
weight levels for relevant derivative securities), etc. Details
regarding this project would be determined jointly by the course
instructor and the student. Care should be taken to ensure that this
project does not replicate a similar project which might have been or
will be used for another class. You must obtain approval
from the instructor before proceeding. (2 Groups Maximum)
4. Derivatives Trading Project
Students who wish to engage in paper or virtual trading of
derivatives can make a project of it for this course. The first step is
to find a suitable trading simulator for this purpose, as JHU does not
subscribe to academic trading simulators such as FTS, Rotman or
Trader-X. But, there are a number of online alternatives. Link
here to a detailed description of
this trading project. (No limit on the number of groups
signing up for this one)
5. An Alternative Project
A project not from the above list. This project, either in a
spreadsheet including VBA or a fully-compiled C++ or Python format will
perform a function subject to specifications agreed to by the student
and the instructor. You must obtain approval from the instructor before
proceeding. (No limit on the number of groups)
updated 071/30/2023