Institute of Management Studies

Devi Ahilya Vishwavidyalaya, Indore.

ASSIGNMENT
OF
FUNDAMANETALS OF DERIVATIVES

Submitted To: Submitted by:

Mr. SUMEET KHURANA SANJAY VERMA (43086)
MBA FT IVth SEM

Literature Review- 1

Journal name- The ICFAI university journal of financial economics

Volume- VI

Date- 4, 2008
Author- Hossenbocus Ruwaydah, Rojid Sawkut and Seetanah boopen

Page no - 34-47

Objective- Using intra –day data to analyze bid-ask spread: a case of Mauritius stock exchange

Finding- The focus of this study is to assess the determinants of daily bid-ask spread. The study uses an
effective spread rather than a quoted one. First, a daily spread of the individual stocks is modeled to see
whether it is determined by the same variables and then, the effects of the variables are analyzed using
panel data. The study also analyzes the day of the week effect in the daily average spread, to see if the
spread is dependent on any day of the week.

Tools- Pooled time series analysis, panel data analysis, mean, standard deviations, skewness and
kurtosis.

Conclusion- The daily bid-ask spread has been analyzed for 12 companies on the stock exchange of
Mauritius to see the effects of serial determinants such as closing price of stock , daily volume traded,
the level of market activity and the return on the stock. The analysis of the daily bid- asks spread on the
stocks has shown that different companies have different variables to explain their daily spread. the
results obtained confirms that the bid-ask spread is dependent on closing price of the stock, level of
market activity ,the firm size and the liquidity of the stock . The results show that liquidity of the stock
(turnover ratio) contributes more to the explanation of the daily spread as compared to other three
significant variables.

Literature Review-2

Journal- The IUP Journal of financial risk management

Volume- VII no.3,2010

PageNo.-57 to 70
Authors-Jacinta Chan Phooi M’ng & Noor Azlinna Azizan

Topic-Can Technical Analysis Predict the Movement of Future Prices?

Objective –To study the technical analysis trading rules that generate abnormal returns for future
prices.

Findings/Conclusion-1.Price trends exist in time series.

2.Price movements are not random and not independent.

Tools- Bollinger Bands Z-Test Moving average and standard deviation.

Literature Review-3

Journal name- ICFAI university journal for applied finance

Date -oct.8, 2008

Volume - v

Page no.-18-25
By- Ashutosh Verma & Nageswar Rao

Objective - Paper examine the weak form efficiency of companies included in the BSE-100 index as on
march 31,2001 by applying serial correlation & run test.

Finding – This paper examine weak form efficiency of the Indian stock market by applying the tests on
the share price of various companies included in the BSE-100 index. This work focuses on 2 aspects,
Technical & fundamental analysis if the market is weak form of efficient, price will not be related on a
day to day basis & technical analysis becomes useless.

Tools –Serial correlation & run test.

Conclusion – For longer period, there was conclusive evidence that the market is not weak form efficient
with very high percentage of significant 1’ coefficient & z values.

Literature Review-4

Journal- The IUP Journal of financial risk management

Volume- VII no.3,2010

PageNo.-47 to 55

Authors-Patrick L Leoni
Topic-Downside Risk of Derivative Portfolios with Mean-Reverting Underlyings.

Objective –To analyze the sensitivity of the downside risk of a standard derivatives portfolio to a change
in the mean –reversion level of its underlyings.

Findings/Conclusion-Higher the intensity of mean reversion, the lower the probability of reaching a
predetermined loss level.

Tools- Heston model.

Literature Review-5

Journal- The IUP Journal of financial risk management

Volume- VII No.3,2010

PageNo.-38 to 57

Authors-P Srinivasan
Topic-Model Specification For Hedging Performance of the Equity Future Markets of Indian Commercial
Bank.

Objective –Examine the performance of various hedge ratios estimated under different econometric
models (viz,OLS,VECM and time varying MGARCH).

Findings/Conclusion-1.Hedging with futures contracts can be the simplest method for managing
market risk arising from adverse movements in the price of various assets.
2.Time varying GARCH model performs better in long run, whereas OLS is a
better measure during short run.
3.The constant hedge ratio does not consider the joint distribution of the spot and
futures varies overtime.

Tools- OLS regression, VECM and time varying MGARCH model.