Option and Future Analysis of Indian Bulls Housing Finance

DRM Individual Assignment Submission Serial Number:72; ID:2014b3a8568g; Name: Shubham kapoor
Student Name: Shubham kapoor

ID: 2014B3A8568G
Serial Number: 72
Instrument Name: IBULHSGFIN
Section-1 (Underlying Asset-Equity)

i) Nature of the business (Banking, software, manufacturing etc.)
India bulls housing finance is a private housing finance company which is regulated
by National housing bank (NHB) . Its business within India is to provide finance and
undertake lending to individuals, body of individuals , builders , firms , developers
, contractors ,institutions and others .
ii) Public or private ownership

India bulls is privately owned with its founder Mr. Sameer Gehlaut as a current
chairman
iii) When it is started and under what circumstances ?

After completing btech degree in mechanical engineering Mr . Gehlaut started
indian bulls group after coming back to India after working with Halliburton then
on May 2005 Indian bulls housing finance was started as a subsidiary of Indian
bulls finance services Ltd.
iv) Industry it belongs? And its importance in the industry?

It belongs to finance-housing industry and is currently the second largest private
housing finance company. They have serviced more than 8.66 lakh customers and
have given home loans of over Rs 1.44 lakh crores.
v) Overall greatness of the company

The company has a long book of $8.0 billion and has disbursed loans of over
$15billion , there average size of home loan is $36000 and with an average tenure
of 15 years . They also have the highest long term credit rating from CARE and
brickwork ratings and AA+ from ICRA and CRISIL .
Page 1 of 20
1) Calculate the sample returns (Mean, Max, Min and Standard Deviation of the returns)
on daily, weekly and monthly frequency.
Tables, graphs and their explanation

Daily Returns
std dev 0.020953
average 0.000461
Min -0.08183
Max 0.084691
Weekly Returns
std dev 0.053863
average 0.002702
Min -0.1179
Max 0.162379
Monthly Returns
std dev 0.11267713
average 0.01511809
Min -0.1753213
Max 0.15382942
As we are increasing the period we are observing an increase in the standard deviation of the
returns. This justifies the volatility of the returns with time. Also as we increase the risk there is
also an increase in min , max which can be seen by the troughs and peaks of the graph which are
highest for monthly and lowest for daily returns . Because of varying standard deviations for
Page 2 of 20
different measurement periods, it becomes important to choose the correct time period to
properly state volatility/risk in your investment returns.
daily return
0.1
0.05
-0.05
-0.1
weekly returns
0.2
0.15
0.1
0.05
0
-0.05
-0.1
-0.15
Page 3 of 20
monthly returns
0.2
0.15
0.1
0.05
0
-0.05
-0.1
-0.15
-0.2
The monthly returns on the equity continue to be positive and high during most months and
hence a long term investor could make profits on his equity holdings. The stock seems to be a
good choice for investment having positive average returns in all three measurement periods.
Page 4 of 20
2) i) Sharpe ratios on daily, weekly and monthly frequency.

sharpe ratio daily
std dev 1.000721

average -0.29281
min -4.2284
max 3.6829
sharpe ratio weekly

std dev 1.000595
average -0.08257
min -2.3322
max 2.872816
sharpe ratio monthly

std dev 0.99971853
average 0.07167392
min -1.6236433
max 0.15382942
From looking at the tables of sharpe ratios for difference frequency we can see that the standard
deviation is very high for all the three periods which makes the stock riskier to trade . Also the
average return of daily and weekly frequency are negative but for monthly its positive which
shows that the stock is better to trade for a long term than in short term.
Page 5 of 20
sharpe ratio daily

5
4
3
2
1
0
-1
-2
-3
-4
-5
sharpe ratio weekly

4
-1
-2
-3
Page 6 of 20
sharpe ratios monthly

1.5
0.5
-0.5
-1
-1.5
-2
3) The economic interpretation of the difference between risk adjusted and risk-
unadjusted returns on daily, weekly and monthly frequency and conclude. Plot the
daily, weekly and monthly returns.
Explanation based on above information.
The Sharpe ratio is a risk-adjusted measure of return used to evaluate and compare the
performance of portfolios by making an adjustment for risk. A ratio of 1 or more is
considered as good. For instruments providing similar returns, it is important to take into
account the risk involved in purchasing either one of them. Here, the concept of risk
adjusted returns helps an investor to make a more intelligent decision. The standard
deviation and Sharpe ratio used provide valuable perception for considering any
opportunity.
The sharpe value show a peak at around 4th march in daily returns of about 3.6
which shows that risk adjusted return on that day is quite high i.e the investor need to
have to take enough risk for a good return
Other values of sharpe ratios with monthly and weekly frequency is not that high
with peaks in-between which shows that the stock has a poor risk to return characteristic.
Page 7 of 20
Section-2 (Equity Futures Instrument)

4) Write the Equity Futures Instrument introduction on the following items
i) When it is started
The futures contract was launched on NSE on 23th jul 2013.
ii) Lot size and contract specifications.

Lot size 800
Listed on NSE
Tick size - 0.5
iii) Overall greatness of the Equity Futures Instrument

Liquidity, volatility (Standard deviation of returns) transaction charges etc.
Futures were introduced to the Indian stock market in order to push speculators away from the
equity market and in doing so, make the markets less volatile.
Futures are a very important vehicle used to hedge or manage different kinds of risks. They also
increase the trading volumes in underlying as a whole. Consequently, futures help reduce
transaction costs and increase liquidity as they are viewed as an insurance or risk management
vehicle
Page 8 of 20
5) Calculate the sample returns (Mean, Max, Min and Standard Deviation of the returns)
on daily, weekly and monthly frequency.
Daily returns
Near middle distant
std dev 0.021689248 std dev 0.022619671 std dev 0.022416017
min -0.082693893 min -0.080901015 min -0.082330073
max 0.080455801 max 0.083504801 max 0.083574715
average 0.000268519 average 0.000266207 average 0.000315122
Weekly returns
Near middle distant
min -0.1192193 min -0.1260145 min -0.1201612
max 0.14445689 max 0.16087031 max 0.16060941
Monthly returns
Near middle distant
min -0.1750463 min -0.1860433 min -0.18582
max 0.14360273 max 0.1487724 max 0.153992
The futures show a similar trend as equity instrument the standard deviation is low. The volatility
( standard deviation ) increases as the frequency of period increases that is monthly returns are
more volatile than the daily or weekly returns . we can also see the similar increase in the average
returns. Comparing standard deviation values for a fixed measurement period (daily, weekly and
monthly), it is seen that the 2 month or mid term values are greater than both of the remaining
Page 9 of 20
values for two of the measurement periods (daily, monthly). This indicates that for our future
equity instrument, the middle futures contract is the most volatile .
DAILY RETURNS Near

0.1
0.05
-0.05
-0.1
DAILY RETURNS middle

0.1
0.05
-0.05
-0.1
DAILY RETURNS Distant

0.1
0.05
-0.05
-0.1
Page 10 of 20
weekly return near

0.2
0.15
0.1
0.05
-0.05
-0.1
-0.15
weekly return middle

0.2
0.15
0.1
0.05
-0.05
-0.1
-0.15
weekly return distant

0.2
0.15
0.1
0.05
-0.05
-0.1
-0.15
Page 11 of 20
monthly returns near

0.2
0.15
0.1
0.05
-0.05
-0.1
-0.15
-0.2
monthly return middle

0.2
0.15
0.1
0.05
0
-0.05
-0.1
-0.15
-0.2
monthly returns distant

0.2
0.15
0.1
0.05
0
-0.05
-0.1
-0.15
-0.2
Page 12 of 20
6) i) Adjust these returns with risk free returns (and also calculate Sharpe ratios) on daily,
weekly and monthly frequency. You need the T-bill rates, they are available in a
separate excel sheet T-Bill. These are returns, so you do not have to calculate the
returns. You can use them directly.
Sharp ratios Daily

Near Middle distant
min -4.120148143 min -3.87130925 min -3.970292324
max 3.358744115 Max 3.355296247 max 0.083574715
average -0.302934746 Average -0.289683933 average -0.29430886
Sharpe ratios weekly

Near middle distant
min -2.4146624 min -2.3334582 min -2.1807746
max 2.56670957 max 2.76657116 max 2.79113974
average -0.0987757 average -0.0967476 average -0.0172325
Sharpe ratio monthly

near Middle distant
min -1.692750399 min -1.7083639 min -1.3739564
max 1.24802813 Max 1.2443333 max 1.3033371
average 0.025467343 Average -0.0856196 average -0.0421713
Page 13 of 20
sharpe ratio daily near

4
3
2
1
0
-1
-2
-3
-4
-5
sharpe ratio daily middle

4
3
2
1
0
-1
-2
-3
-4
-5
sharpe ratio daily distant

4
-2
-4
-6
Page 14 of 20
Sharpe ratio weekly near

3
-1
-2
-3
Sharpe ratio weekly middle

3
-1
-2
-3
Sharpe ratio weekly distant

3
-1
-2
-3
Page 15 of 20
sharpe ratio montly near

1.5
0.5
-0.5
-1
-1.5
-2
sharpe ratio montly middle

1.5
0.5
-0.5
-1
-1.5
-2
sharpe ratio monthly distant

1.5
0.5
-0.5
-1
-1.5
-2
Page 16 of 20
7) The economic interpretation of the difference between risk adjusted and risk-
unadjusted returns on daily, weekly and monthly frequency and conclude. Plot the
daily, weekly and monthly returns.

The risk adjusted returns is a better measure to evaluate a instrument as the risk factor from the
investment is eliminated. As we see in the equity instrument the standard deviation of risk
adjusted returns are far greater than risk unadjusted. The risk adjusted returns is used to
calculate max , min and average for efficient portfolio assessment .
The average risk adjusted returns is negative for all the contracts except the near
monthly contract but the highest volatility and average value for is for the weekly middle
contracts and as also seen from the graph the most highest peaks are in weekly graphs .
8) Similarly, calculate the sample risk adjusted returns and unadjusted returns of the
middle and far month. Compare with the near month returns and also with the
underlying asset returns also.
Graphs and tables of near, middle and distant for weekly, monthly and daily are given
above . Both risk adjusted and risk unadjusted returns are given . To compare the
instrument we will see the better average returns and better sharpe ratios .
In the case of risk unadjusted returns monthly returns are the highest and that to
for the middle contracts . For weekly and daily the highest is distant average returns
In case of risk adjusted the sharpe ratios are highest for the weekly values and is
highest for the middle term contracts .
Section-3
9) Compare the underlying risk adjusted and risk-unadjusted returns with Futures
instruments risk adjusted and risk-unadjusted returns and discuss on compared returns
on daily, weekly and monthly frequency. Also comment on the liquidity conditions of
the underlying assets, futures instrument (near month, middle month and far month).
Explanation with proper reasoning.
Page 17 of 20
First discussing about risk-unadjusted returns, we notice that average returns on underlying asset
is more than average returns of futures contracts. This could be because the equity assest might
be more volatile then its futures contract which are less volatile in nature. Thus the more volatility
means higher risk which means a higher average return
Now comparing the risk adjusted returns of underlying asset and the future instrument
we can see that for the underlying asset the average returns are negative for daily and weekly
but positive for monthly but in the case of futures its negative for all three periods but the sharpe
ratios has a higher values for future contract than the underlying assest indicating the risk
adjusted returns are higher in the future contracts .
Section-4
10) Does the futures instrument exhibits contango or backwardation? Explain why?
Show it graphically (for all frequencies)
Monthly
1800
1600
1400
1200
1000
800
600
400
200
0
distant nearby
In monthly case the nearby is less than distant is less than nearby and its a case of
backwardation .
Page 18 of 20
weekly
2000
1800
1600
1400
1200
1000
800
600
400
200
0
nearby distant
The weekly price shows a contango as nearby is lower than distant .
Daily
2000
1800
1600
1400
1200
1000
800
600
400
200
0
distant near
The daily graphs shows a backwardation future is lower than nearby price .
Page 19 of 20
11) Does the frequency matters?
Show the consolidated tables and interpret it.

Daily Returns
std dev 0.020953
average 0.000461
Min -0.08183
Max 0.084691
Weekly Returns
std dev 0.053863
average 0.002702
Min -0.1179
Max 0.162379
Monthly Returns
std dev 0.11267713
average 0.01511809
Min -0.1753213
Max 0.15382942
The frequency as seen from above table matters as we increase the frequency the standard
deviation increases as we increase the persiod and also the average returns increases this
increase is because that we go more in future there will be more risk associated with it with
more risk there will be more deviation from the mean and hence the average will also be higher
. It can be seen in both monthly and weekly case that as we increase the period there will be
an increase in average return and an increase in standard deviation therefore for an investor
to invest who has to invest in long term should see the returns for longer duration .
Page 20 of 20

Option and Future Analysis of Indian Bulls Housing Finance

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DRM Individual Assignment Submission Serial Number:72; ID:2014b3a8568g; Name: Shubham kapoor

Student Name: Shubham kapoor

Section-1 (Underlying Asset-Equity)

ii) Public or private ownership

iii) When it is started and under what circumstances ?

iv) Industry it belongs? And its importance in the industry?

v) Overall greatness of the company

Tables, graphs and their explanation

2) i) Sharpe ratios on daily, weekly and monthly frequency.

Tables, graphs and their explanation

std dev 1.000721

sharpe ratio weekly

sharpe ratio monthly

sharpe ratio daily

sharpe ratio weekly

sharpe ratios monthly

Section-2 (Equity Futures Instrument)

The futures contract was launched on NSE on 23th jul 2013.

ii) Lot size and contract specifications.

iii) Overall greatness of the Equity Futures Instrument

DAILY RETURNS Near

DAILY RETURNS middle

DAILY RETURNS Distant

weekly return near

weekly return middle

weekly return distant

monthly returns near

monthly return middle

monthly returns distant

Tables, graphs and their explanation

Sharp ratios Daily

Sharpe ratios weekly

Sharpe ratio monthly

sharpe ratio daily near

sharpe ratio daily middle

sharpe ratio daily distant

Sharpe ratio weekly near

Sharpe ratio weekly middle

Sharpe ratio weekly distant

sharpe ratio montly near

sharpe ratio montly middle

sharpe ratio monthly distant

Tables, graphs and their explanation

The weekly price shows a contango as nearby is lower than distant .

11) Does the frequency matters?

Show the consolidated tables and interpret it.

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