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. (5 marks) 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. (4 marks) 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. (6 marks) Assessment criteria: o Correct liquidation of positions and calculations of profit/loss o Full details of transactions captured in a table with appropriate narrative of all relevant 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. (3 marks)
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