May Examination Period 2022-23

ECOM057 Asset Management Duration: 2 hours

PLEASE ENSURE THAT YOUR WORKING IS CLEARLY SHOWN WITH ALL STEPS OF YOUR CALCULATION INCLUDED IN YOUR ANSWER DOCUMENT, INCLUDING ANY FORMULA USED.

Calculators are permitted in this examination. Please state on your answer book the name and type of machine used.

Complete all rough workings in the answer book and cross through any work that is not to be assessed.

Possession of unauthorised material at any time when under examination conditions is an assessment offence and can lead to expulsion from QMUL. Check now to ensure you do not have any notes, mobile phones, smartwatches or unauthorised electronic devices on your person. If you do, raise your hand and give them to an invigilator immediately.

It is also an offence to have any writing of any kind on your person, including on your body. If you are found to have hidden unauthorised material elsewhere, including toilets and cloakrooms it will be treated as being found in your possession. Unauthorised material found on your mobile phone or other electronic device will be considered the same as being in possession of paper notes. A mobile phone that causes a disruption in the exam is also an assessment offence.

EXAM PAPERS MUST NOT BE REMOVED FROM THE EXAM ROOM

Examiner: Gonçalo Faria

Answer ALL questions

Page 2 ECOM057 (2023)

© Queen Mary University of London 2023

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Question 1

An asset manager has a short position of 10,000 shares of company DMT. The asset manager wants to hedge 35% of the market risk associated with this position. For that purpose, it has been decided to use call options with shares of company DMT as underlying. The absolute value of the delta of this call option is 0.25.

a) What type of risk does delta measure and is it a reliable risk measure for large changes

in the risk factor? Explain your answer.

[10 marks]

b) Give an example, explaining its rationale and quantifying it, of a hedging strategy

based on the use of call options that the asset manager can implement to reach his

hedging objective.