Finance INVE3000 -Introduction To Derivative Securities Assignment


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  • Referencing Styles: Chicago
  •  Words: 1750
  • Course Code: INVE3000
  • Course Title: Introduction to Derivative Securities
  • University: Australian Catholic University
  • Country: AU



Please give short answers for the listed questions:


1. What are the difference between Crude oil (commodity) spot price, Crude oil company stock price, Crude oil futures price (different month), Crude oil futures option price?


2. Please find a similar graph online, copy and paste in your essay to verify the graph below, and then give a brief introduction of the negative WTI Crude Oil Spot Price on 20th April 2020.


3. On the same day, the WTI crude futures contract, linked tightly to the physical oil market. The Crude Oil Front Month Futures (CLc1) which expires in May closed at -$37.63/bbl. Please find a graph online showing the above fact.


4. We know that the nearby contract turned negative, what about the deferred month futures, e.g., the June contract? Was it also negative or it was still trading at a positive price, please explain? Please also show me the graph.


5. If futures price turns negative, will future option price also goes to negative? Or option strike price will be adjusted to a negative value, but futures option premium is still positive? Please answer this question based on the table.


6. The Black-Scholes option pricing formula requires the underlying price to stay positive. Then, Black-Scholes cannot be used to price the Crude oil futures option when Crude oil futures price go negative. How did the exchange solve the option pricing problem allowing negative underlying price? (Hint: CME group employed Bachelier model. You will be awarded a full mark by copying and paste the information from the website and provide in-text citations with references. We will get back to this piece of knowledge after we learn option pricing in week 7