|The Royal Melbourne Institute of Technology (RMIT)
|BAFI1029: Derivatives and Risk Management
BAFI1029 Derivatives and Risk Management Assignment, RMIT, Singapore: This is an individual task. In this assessment, students are required to use the Trading Simulator tool from CME
This is an individual task. In this assessment, students are required to use the Trading Simulator tool from CME Group to trade on future products to hedge risk and/or take advantage of speculation. In the #1 trading session, you will focus on Energy Future products.
The goal of this individual assignment is to gain a better understanding of the future market and risk management process, by testing and refining your trading strategies.
Below are the steps you need to follow to accomplish the task:
- Attend your local class in Week 5. Use your email address to create an account with CME Group, during the workshop.
- Your instructor will use 1.5-2 hours to go through the task, elaborate the basic specs of Energy future products, explain the trading rules and demonstrate how to trade. You can start trading after instructor’s demonstration.
- Your trading is to primarily hedge your risk exposure to the oil price. For student whose student number end with odd number, assume you are treasurers at airline company, and you are going to buy 10,000 barrels of jet fuel oil in 3 months. For student whose student number end with even number, assume you are jet fuel oil producer, and you are going to sell 10,000 barrels of jet fuel oil in 3 months. You aim to use Energy future products to hedge your price risk. Record the fuel price when they start to take positions on CME, to: 1) provide a background info about/justify how many contracts you go long/short, 2) show whether you succeed in hedging risk.
- You have $100,000 USD cash on hand at the beginning of your trading. You must use at minimum 70% of your account balance to hedge your oil price risk. Meanwhile, you are allowed to have up to 30% of your account balance to speculating/arbitraging, and the speculation/arbitrage products are not limited to Energy futures (e.g., other future products, you can even use Crypto futures to earn short-term profit, but also mind the potential loss).
- You can trade anytime after your instructor’s demonstration, till any date before 26 August 2022. You can also stop your trading before this date if you already finalized your trading strategy. You can trade as many times as you want, as long as you can justify your trading philosophy. You can do some trials at the beginning of the trading period to get familiar with the platform. When you decide to officially start to implement your strategy, please do not reset the game before your last trading date.
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