Description
Instructions
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If you worked with someone on a speci c problem, make sure you tell me about it. If you do not do this and I notice a verbatim reproduction of material, I consider it as plagiarism. There can be serious consequences to this.
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I will randomly pick 6 students in the class, who will be asked to explain all aspects of their submitted code to me. Do not be disturbed if your name appears in this list { I just need to go through it to ensure the grading is fair.
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If you picked-up the solution from some source, make sure you mention it. If you do not do this and I notice a verbatim repro-duction of material, I consider it as plagiarism. There can be serious consequences to this.
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Each submitted document should be personalized. I expect to see
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C++ code and header les (if any), the comments in the code should pretty much tell me what you are trying to do
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A PDF version of sample-runs that accompanies each sub-mission, have to be uploaded on Compass by the due date.
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The written In-Class Exam will be held during class hours on 17 October 2018.
1
I want you to write a comprehensive, readable (i.e. put a lot of comments; have meaningful variable names; etc. etc.) Portfolio Optimization Software Package in C++ assuming you have parallel shifts in the term structure.
Input Speci cation: The input le to your software will have the following format:
1st-line:
2nd-line:
3rd-line:
4th-line:
kth-line:
(k + 1)th-line:
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#CFs |
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CF-1’s PV |
Maturity |
cf |
1 |
cf |
1 |
cf |
1 |
cf1 |
cf1 |
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1 |
2 |
3 |
4 |
2 |
n |
2 |
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CF-2’s PV |
Maturity |
cf |
2 |
cf |
2 |
cf |
2 |
cf2 |
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2 |
2 |
2 |
1 |
cf2 |
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1 |
2 |
3 |
4 |
n |
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CF-3’s PV |
Maturity |
cf1 |
cf2 |
cf3 |
cfn3 |
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k |
k |
k |
k |
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CF-k’s PV |
Maturity |
cf1 |
cf2 |
cf3 |
cfnk |
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FV of user’s |
due |
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debt obligation |
date |
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(i.e. k-many Bonds; the 1st number in each row is the PV of the bond, followed by the bond’s cash- ows; not all of them have the same maturity; followed by the FV of user’s debt obligation and the time when its is due).
Output Speci cation 1: We do not assume a at term structure, but we assume the term structure changes are parallel (i.e. the yield changes by the same %-age amount for all maturities).
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Compute the YTM for each cash ow.
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Compute the duration for each cash ow.
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Compute the convexity for each cash ow.
Output Speci cation 2 Assuming no changes in term structure, compute the %-age of the face value of each cash ow you would have to purchase to meet the future debt obligation.
Output Speci cation 3: Pick the bond-portfolio that will meet this obli-gation when it is due, and has the largest convexity among all possible portfolio choices. You should pose this as a Linear Programming Problem and use lp solve to nd the optimal answer. Your nal answer will say that we need to buy 1% of rst cash ow, 2% of second cash ow, 3% of third cash ow, etc. No short-selling is permitted (i.e. all your ’s have to be non-negative).
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In your write-up, present an explanation of the strategy/method that you used in picking the best portfolio.
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Make sure your program will handle the case when there is no portfo-lio that will meet the debt obligation if we are worried about (parallel) movements in the term structure (cf. gure 2).
I also want to see a couple of sample runs (cook-up your own data; or use lesson 4 of my notes).
Partial Credit Information: This should help you decide how your e orts should be spent in the next two weeks.
2
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(20 points) Making sure you catch every possible error/infeasibility that might occur in the general setting.
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(20 points) Soundness of your theoretical arguments for the design-methodology that you adopt for the portfolio design.
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(60 points) The correct functioning of your code.
A sample screen shot is shown in gure 1.
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Figure 1: A sample screen shot.
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Figure 2: A sample screen shot of an infeasible set of cash ows.
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Figure 3: A sample screen shot for the example that is done in lesson 4. You can compare these results with those in the Brute-Force Excel Spreadsheets provided on Compass with Lesson 4.
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