I have attached a file that should explain everything that needs to be done below, please make sure you follow the guidelines for this assignment.FINA 403 – Derivatives
Spring 2021 – OTC Contract
I would like each student to construct an Over-The-Counter (OTC) contract this
semester. This contract will be traded with another student in class that I will
match you up with.
The contract should include the following elements:
Expiry date: this should be Friday April 30th for all contracts.
Call or Put: (choose one of these)
Underlying asset: choose something to serve as the underlying asset. You
can get creative with this, but make sure that the price/value of the asset is
something that we can look up easily. Furthermore, please ensure it is
something that does have some level of volatility or uncertainty in the
Contract Size: this can be omitted! All prices should be quoted on a per
Strike price: choose a strike price that you think will make the contract
interesting (generally, strike prices which are very far away from the
current price of the underlying asset make the contract less interesting to
Trigger event: please include some event which would alter the contract
in one of the following ways (choose which one you prefer):
o change the contract from a Call to a Put (or vice versa, depending
on what the original specification was)
o change the strike price of the contract (please specify how the
strike price would be changed)
[The trigger event itself can be anything which has some chance of
actually happening during the semester. Ideally, try to think of something
which has a small chance of occurring during the semester, maybe 5%
chance. Please avoid events that have a specific date, for example, the
result of a specific sporting event, unless the event is close to the expiry
date of the contract and you expect there to be news which could affect
perception of the outcome of the event during the semester.]
Note: please notify me as soon as you believe the event has been triggered
on a contract. Any disputes between students regarding whether or not the
event has occurred will be settled by me or a vote by the rest of the class.
o Option premium: [leave blank. We will complete this in class together]
o Buyer: [leave blank. We will complete this in class together]
o Seller: [leave blank. We will complete this in class together]
Please note the following key dates:
Friday, February 12th: upload a copy of your contract to the course website so
that I can review it. The contract should be typed; you can use the above outline
as the framework (simply type in your choices next to each item). Please monitor
your e-mail over the weekend: I will send you notice approving the contract or
asking for clarification or revisions.
Tuesday, February 16th: contracts to be traded during class time. Please let me
know if you will not be able to attend the class session.
The following days are deadlines for submitting a mark-to-market value of the
contract via the course website:
Sunday, February 28th
Sunday, March 21st
Sunday, April 11th
Sunday, May 2nd
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