PAPER CODE EXAMINER DEPARTMENT TEL
MTH319 Yi Hong FAM 1729
1st SEMESTER 2022/23
AssignmentONE
Financial Engineering
SUBMISSION DEADLINE: 5:00 PM on Sunday November 20, 2022
INSTRUCTIONS TO CANDIDATES
1. The assignment comprises 15%weight of the final module mark.
2. Write a report about the performance of hedging strategies (details and guidelines
attached).
3. The report must be written in English, associated with the supportive excel files.
4. University policy on late submission will be followed.
Introduction
This part of the course assessment is worth 15% of the final mark for the course, and consists of a
take-home course assignment that will be worked on and submitted properly.
This project aims to practice your skills in pricing, hedging and trading involving options, stocks and
bonds in the context of Monte Carlo simulations.
SCENARIO:
Suppose you are working on a security market consisting of a stock, a Treasury bond and a
European (call/put) option:
1) a Treasury bond delivers the annual yield of 2.0% (r = 2.0%) with continuous compounding,
and has the infinity maturity (TBond=∞). Under a risk-neutral probability measure Q, the bond
price follows a process as follows:
( )
( )
dB t
rdt
B t
