MFIN6003 Derivative Securities Dr.

Huiyan Qiu

Group Project #1

Due date: Session 6

The aim of this project is to get familiar with your group members, the Hang Seng Index
Futures, and the mark-to-market process in futures trading.

Submission of the project: each group is required to submit their write-ups in PDF in the
course Moodle page by the due date.

❖ Include a cover page with the information of all group members (name, university
number, and email address) and the group number.

❖ Only PDF file will be accepted by the system and the submission system closes at
11:59pm on the due date.

The write-up should include three parts.

Part I: Group Introduction

Each group is required to have a group introduction in their write-up. Not only briefly
introduce all group members, but also identify the strengths and weaknesses of the group
and how group member can learn from each other and benefit from group projects.

Part II: Hang Seng Index Futures

➢ Provide contract specification on the Hang Seng Index Futures.

➢ Provide some other relevant information for trading index futures. Be selective. The
purpose is for you to research on information and digest the information. Then
present the information that is more relevant.

➢ For each of the trading days during the following period: August 1 to September 8,
2023, find the daily trading information of Hang Seng Index Futures contracts. Create
a table presenting the information on open interest and daily settlement price of the
four most actively traded Hang Seng Index Futures contracts during the specified
period.
➢ Draw a diagram to compare the prices of index futures over time for the specified
period, with the dates for the x-axis and daily settlement price for the y-axis. Note:
Hang Seng Index level should also be included for comparison.

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MFIN6003 Derivative Securities Dr. Huiyan Qiu

Part III: Investing in Index Futures and Mark-to-Market

Suppose you opened an investment account with BOCOM International Security Ltd.
on August 1, 2022, and started to take a long position with 8 HSIF0922 contracts. (The Hang
Seng Index Futures expiring in September 2022. Suppose you entered at that day’s
settlement price.) You closed your position on September 7, 2022. Refer to the appendix for
the settlement price of HSIF0922 as well as the level of HSI from August 1, 2022, to
September 7, 2022.
➢ Prepare a table showing your margin account (daily balance, futures price,
gain/loss…) Initial margin and maintenance margin for Hang Seng Index Futures over
the investment period were HK$89,176 and HK$71,340, respectively, per contract.
Assume the annual interest rate on your account is 2% with continuous
compounding.
➢ Calculate the annualized rate of return on your investment. For simplicity, assume
that over the period, you met all margin calls if any and you didn’t withdraw money
from your account even when you could. Use the following numbers for transaction
cost matter: $100 BOCOM commission fee, $10 exchange fee, $0.54 commission levy
(these three charges are per side per contract) and $10 settlement fee per contract
(collected only on the final settlement day of the contract).
➢ Is your rate of return higher or lower than 2%? What if you invest (superficially) in
HSI directly over the same period? Have some discussion.
Appendix: Settlement price of HSIF0922 and level of HSI

Date HSI HSIF0922 Date HSI HSIF0922

8/1/2022 20,166 20,076 8/19/2022 19,773 19,643
8/2/2022 19,689 19,541 8/22/2022 19,657 19,514
8/3/2022 19,767 19,670 8/23/2022 19,503 19,387
8/4/2022 20,174 20,077 8/24/2022 19,269 19,156
8/5/2022 20,202 20,060 8/25/2022 19,968 19,827
8/8/2022 20,046 19,950 8/26/2022 20,170 20,035
8/9/2022 20,003 19,951 8/29/2022 20,023 19,942
8/10/2022 19,611 19,505 8/30/2022 19,949 19,872
8/11/2022 20,082 19,963 8/31/2022 19,954 19,863
8/12/2022 20,176 20,056 9/1/2022 19,597 19,535
8/15/2022 20,041 19,956 9/2/2022 19,452 19,436
8/16/2022 19,831 19,744 9/5/2022 19,226 19,182
8/17/2022 19,922 19,839 9/6/2022 19,203 19,160
8/18/2022 19,764 19,660 9/7/2022 19,044 19,031

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