Indian Institute of Management, Raipur

Derivatives (DER)

Project

SUBMITTED TO :
Prof. Rajesh Pathak

SUBMITTED BY :

Rajni

22PGP227
Assignment 3 :
Using the cost of carry model (considering its assumption holding true), price the available
futures contracts for you stock. You may consider the stock to be non-dividend paying in
absence of such information. Deliberate on whether you observe an arbitrage opportunity for
the stock you are assigned and of what kind (Cash & Carry or Reverse C & C). Assume
continuous compounding and employ the data for the study from the current fiscal year (2023-
24).
 Comment on the price discrepancy, if any, and its exploitation steps for your stock to
bring the price back at equilibrium.
 Also comment whether you observe a contango/backwardation for your stock based on
observed market prices and describe the movement in basis.

Step 1 – Go on NSE website and fetched the data for TCS in the year 2023 for stock futures
using the below link
https://www.nseindia.com/report-detail/fo_eq_security

Step 2 – Fetched dividend data using

https://in.investing.com/equities/tata-consultancy-services-historical-data-dividends

Step 3 – For each date I defined a formula such that if the future’s close price was greater than the
underlying value it was defined as “Contango” if not “Backwardation”.

Step 4 – calculated the Expected Futures price using the below formula
Expected futures price = Underlying value – Dividend*e^(Risk free rate*Days left in expiry/365)

Step 5 – Calculated the difference between the Expected futures price (calculated) and the Futures close
price to check if there is any arbitrage opportunity

Step 6 – Defined the steps to exploit the arbitrage in such a way that if Futures close price was less than
the expected futures price we would “Buy the futures and short in spot” and if Futures close price was
greater than the expected futures price we would “Short the futures and buy the spot”

Step 7 – Calculated the expected gain by exploiting arbitrage opportunity by multiplying the per unit value
with the lot size
Assignment 4 :
Test the put-call parity relationship for options trading on your assigned stock. Choose at least
three strike prices (one from each moneyness category) for the investigation and comment on the
arbitrage opportunity if any. You must employ minimum one-week daily trading data of options
contract traded during April-June, 2023 to derive your inferences.

Step 1 – Take the historical option data from NSE website using the following link