MGT 4067: Trading and Structure

Submission 3

Instructions:
You are allowed and encouraged to discuss the subject matter amongst yourselves. Each group submits only one writeup. Writeup for each group should be their original work. Submissions will be electronic on canvas. You may use excel, word, power-point or combinations of all. There are no limits or constraints on single or double spacing or font sizes or number of pages for your submission. The write up should address the questions in a clear manner in a way that the reader understands your presentation.

1. Consider buying December S&P e-mini futures. The condition is that moving average crossover should signal a buy. Use 10 days for fast moving average and 20 days for slow moving averages. Once bought, create a stoploss exit strategy. Use a profit taking price of 30 ticks above the buying price. The stop loss price should be calculated using the stop loss model we built in class with a probability of 0.55 for an up move of one tick. Submit your ADL diagram.

2. Consider selling December S&P e-mini futures. The condition is that the Bollinger bands (2 standard deviation) should signal a sell and that the RSI should signal a sell (overbought RSI above 80). Once sold create a buy back exit strategy. The buy back should be triggered when the stock price is in the middle of the Bollinger band. Then create a loop so that this algo is repeated indefinitely. Submit your ADL diagram.

3. Design a trading algo of your choice. Explain in plain words why you believe your algo should be effective. You may do historic data analysis to test/support your strategy. If possible, create an ADL diagram in the TT platform.

4. A pension fund has the following liability schedule: Also the following bonds are available: Assume that the excess funds can be invested in a vehicle earning 2% every year. Find the least cost portfolio of bonds to purchase today to meet the obligations of the company over the next 4 years.
5. You have $1,000 to invest. The following four investment vehicles are available.
Investment 1: Every dollar invested now yields $0.20 a year
from now, and $1.20 three years from now.
Investment 2: Every dollar invested now yields $0.20 a year
from now and $0.90 two years from now.
Investment 3: Every dollar invested one year from now yields
$1.10 three years from now.
Investment 4: Every dollar invested two years from now
yields $1.10 three years from now.
Year 1 Year 2 Year 3 Year 4
12000 20000 15000 20000
Price 102 99 101 98 98
Coupon(Annual) 3 3 4.5 3 4.5
Maturity (yrs) 1 2 2 3 4

During each year leftover cash yields 5% annually. The most in each investment should be $400 How should you invest to maximize the cash three years from now? (See pension funds video).

6. The following is a matrix of foreign exchange rates:

EUR GBP CHF USD AUD CAD HKD INR JPY
EUR 0.8725 1.1379 1.145 1.5745 1.5052 8.9846 81.2662 124.5984
GBP 1.3041 1.3122 1.8044 1.725 10.2969 93.1355 142.7965
CHF 1.0063 1.3837 1.3228 7.896 71.4194 109.5011
USD 1.3751 1.3146 7.8469 70.975 108.8198
AUD 0.956 5.7064 51.615 79.1367
CAD 5.9691 53.9906 82.7791
HKD 9.045 13.868
INR 1.5332
JPY

So for example, 1 Euro = 1.145 USD. And hence 1 USD = 1/1.145 EUR. Use network theory and determine if there is arbitrage opportunity in the currency market.