- Total
Assume you are an employee of Citibank in New York. One of your clients has interest in Switzerland
and on his behalf; you recently sold a Swiss franc futures contract at time t. You now wish to assess
the cash flows of the exchange rate that has evolved as shown here below. Assuming an initial
margin of $2’000, a contract size is CHF125’000 and a maintenance margin of $1’400 fill in the
schedule underneath by assessing what your cash flows would have been and finally determine what
the variation margin be in day t+5.
a)
b)
Determine the variation margin in day t+5
2.
An investor holds a short position in four September gold futures contracts. Each gold futures
contract is for delivery of 100 ounces of gold. When the contract was entered into on day zero, the
futures price was $350 per ounce.The initial margin is $1,750 per contrac, and the maintenance
margin is $1,312.50 per contract. The following table gives information on the price of gold for
1
Day Futures Price
$/CHF
Change in
Futures Price
Gain or Loss Cumulative
Gain or Loss
Margin
Account
T 0.7335
t + 1 0.7391
t + 2 0.7388
t + 3 0.7352
t + 4 0.7297
September delivery over a 4-day period (show computations)
Day Closing Futures Prices ($)
1 345.50
2 348.75
3 355.50
4 356.25
Compute the variation mrgin be on the first day a margin call is received (Show your computation)?
3.
Consider a hypothetical futures contract in which the current price is CHF 212. The initial margin is
CHF 10 and the maintenance margin is CHF 8.You go Long 20 contracts and meet all margin calls but
do not withdraw any excess margin.
a) At what price will a margin call be trigerred ?
b) Complete the Tbale below nad expalin any funds deposited. Assume that the contarct ia
purchased at the settlement priceof the day so there is no mark-to market profit or loss on
the day of purchase (TIP: Funds deposited on day 0 is CHF 200 hence balnace on same day is
also CHF 200.
Day Beg. Balance. Funds Deposited. Futures Price. Price Change. Gain/Loss. End Balance.
1 212
2 211
3 214
4 209
5 210
6 204
7 202
c) How much are the total gains or Losses by the end of Day 6 ? - Total
The daily process of adjusting the margin in a futures account is called (Multiple Choice):
A. Variation margin
B. Marking-to-market
2
C. Maintenance margin
5.
Three 125’000 Euro futures contracts are sold at a price of CHF 1.0234. The next day the price settles
at CHF 1.0180. The mark-to-market for this account changes the previous day’s margin by (Show
your Computations):
A. +CHF 675
B. –CHF 675
C. +CHF 2’025
6.
Consider a Portfolio of stocks and bonds.The expected return on the PF stocks is 12%, standard
deviation is 22%. The expected return on the Bond portion is 5% and the standard deviation is 7% ;
all these fugures being annual. The correlation bettwen the 2 asset calsses is 0.15. The portfolio
market value is CHF 150 million and is allocated 65% to stocks and the rest to bonds.
Using the analytical (variance-covariance) method , determine the VaR for below cases (2 % each) :
a). 5% yearly VaR
b) 1% yearly VaR
c) 5% weekly VaR
d). 1% weekly VaR
7.
Consider a Bank porfolio position consisting of a CHF 100'000 investment in Asset A and another CHF
100'000 investent in Asset B. Assume that daily volatilities of both assets are 1% and that the
coefficient of correlation between the two returns is 0.3
Compute the 20-day VaR for the Bank Portfolio (ignore weights as most banks do)
8.
Following information is given of the 40 worst monthly returns of the Swiss Novartis stock during the
lst 20 years, in descinding order as of 2011 (minus signs ignored).
0.26190 0.11692 0.00907 0.07537
0.22645 0.11553 0.80926 0.07298
0.20511 0.10838 0.08585 0.07260
0.19462 0.10805 0.08481 0.07247
3
0.18802 0.10687 0.08422 0.07075
0.17183 0.10503 0.08356 0.06894
0.16415 0.09873 0.08234 0.06782
0.14834 0.09550 0.08197 0.06746
0.14773 0.09276 0.08143 0.06501
0.12444 0.09091 0.07547 0.06437
Using above data, using the Historical method; and assuming a portfolio value of CHF 100’000
a). Calcualte the 5% monthly VaR (6% )
b). Calcualte the 1% monthly VaR (6% )
9.
a). Describe What is Foward Contract and what is a Futures Contract (5% )
b) What are the 4 Major distinguishing Characteristics between a Foward and Fuures Contract (5 % )
10.
A Financial analyst gathered the following data from an Audit of a company:
● 1’000’000 shares of common stock are outstanding at the beginning of the year
● 10’000 6% convertible bonds (conversion ratio is 20:1) were issued at par June 30 of the
year
● The company has 100’000 warrants outstanding all year with an exercise price of CHF 25
per share
● The average stock price for the period is CHF 30 and the ending stock price is CHF 20
If the convertible bonds are considered dilutive, compute the WASHO that the analyst would use to
calculate Diluted EPS.
11.
Situation A:
Considera a Single Asset Portfolio – GBS, Geneva
Assumptions:
● CHF 10'000'000 Shares of GBS
● N = 10 (short fall or loss period)
● X = 99 (1% level of significance)
4
● Assume 252 days of trading per year, volatility of 2% per day
● Analyse data and asess VaR
Situation B:
Consider another Single Asset Portfolio – Geneva Barcelona
Assumptions :
● Position of CHF 5 Miliion on IMD, Lausanne
● Daily volatility is 1% (approx. 16% per year) hence standard deviation of the change in
Portfolio in 1- day is CHF 50'000 (1% of 5 million)
● Analyse and asess 10 day VaR at 99% Confidence Level
Questions:
Now combine the 2 Situations above to create a 2 Asset case Portfolio of GBS Global that
incorporates GBS Geneva and GBS Barcelona.
Assumptions:
● Correlation between the 2 returns is 0.3 (ignore weights)
Using the information from above:
a). Analyse data and assess 10 day VaR at 1% level of significance (5% )
b). Compute the monatery value of the benefits of Portfolio diversification (5% )
Sample Solution