Individual Assignment 2 (25%)
o Submit your assignment electronically via the Turnitin Assignment tool by Wednesday
28th October. The link for the Turnitin Assignment tool has been created for you under
the Assignment page on MyUni. You will need to upload a Word version of your
assignment to Turnitin.
o ONLY e-submissions will be accepted. For guidance on how to submit your assignment
electronically via MyUni, please visit http:
www.adelaide.edu.au/myuni/tutorials and
click on the “Submit an Assignment” tutorial.
o Use ONLY the data file provided on MyUni under the ‘Assignment 2’ module.
o You are encouraged to use Eikon to research into the selected stocks and the relevant
futures contract. Eikon instructions are provided on MyUni. You may use other data
sources if you prefer.
Assume you have AUD500,000 cash to be invested in an equal-weighted portfolio on
January 2, 2020 for 3 months. The portfolio will comprise four Australian stocks: WPL,
COE, OSH and BPT, all of which are from the oil exploration and production sector.
Identify a major risk in your portfolio of stocks to hedge with an appropriate futures
contracts XXXXXXXXXXmarks)
Assessment criteria:
o Identification of major risk
o Methodology for identification of major risk.
o Rationale for selection of futures contract for hedging.
For a better informed hedge, you believe it is simultaneously necessary to align with the
expected future market state of the principal commodity. Using the term structure of
futures contracts for the futures contract you selected above, assess the market risk over
the three months period XXXXXXXXXXmarks)
Assessment criteria:
o Plotting the term structure
o Implication based on the curvature
o Potential market risk based on the curvature
Hedge your portfolio using the minimum variance hedge ratio. (7 marks)
Assessment criteria:
o Rationale for using the minimum variance hedge ratio
o Calculation of minimum variance hedge ratio
o Implementation of hedge
At the end of the period, close all positions and evaluate the effectiveness of your hedge.
XXXXXXXXXXmarks)
Assessment criteria:
o Co
ect liquidation of positions and calculations of profit/loss
o Full details of transactions captured in a table with appropriate na
ative of all
elevant transactions that may occur in real world investment
o Effectiveness of the hedge and reasons why the hedge strategy worked/failed to work
as you expect
o Discuss how the hedge can be improved taking into account the shortcomings you
identified above
REPORT WRITING. Your report must document a complete discussion of the process outlined
above, including full details of transactions executed. Transaction costs must bear evidence
that it is a realistic figure. Good structure, presentation and concise writing skills are likewise
important. Your report length can be a MAXIMUM of 5 pages (size 12 font, 1.5 spacing),
including all discussion, graphs, tables and references XXXXXXXXXXmarks)