Exam 2 (Module 3) 2024

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Exam 2 (Module 3)

January 2024

Instructions: This is a mini project on the use of the Monte Carlo scheme to price exotic options to be completed using Python. C++ is also allowed, but Excel/VBA is not permitted. As this is the half way point of the CQF, this assessment is designed for delegates to show independence and maturity in interpretation of a slightly open ended problem. It will test

 finding and understanding the relevant lectures, Python labs and tutorials in module 3; as well as the Python primer.

 ability to experiment and demonstrate initiative in mathematical and numerical methods.

 willingness to work outside narrow instruction that are typical of maths based tests/exams.

Task

Use the expected value of the discounted payoff under the risk-neutral density Q

for the appropriate form of payoff, to consider Asian and lookback options.

Use the Euler-Maruyama (only) scheme for initially simulating the underlying stock price. As an initial example you may use the following set of sample data

Then vary the data to see the affect on the option price. Your completed assignment should centre on a report to include:

                                                                                                       Mark Scheme

Outline of the finance problem and numerical procedure used                 20%

Results - appropriate tables and comparisons                                         35%

Any interesting observations and problems encountered                          25%

Conclusion                                                                                          15%

References                                                                                           5%

 Outline of the finance problem and numerical procedure used.

 Results - appropriate tables and comparisons.

 Any interesting observations and problems encountered.

 Conclusion and references

For a Python Jupyter Notebook, a detailed notebook will become the complete report (write-up, code, results).