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March 1, 2022

Work Experience for Lower Eighth Pupils With Investment Management Company Cheyne Capital

In February 2022, four Lower Eighth students visited Cheyne Capital where they had a tour of the trading floor and were briefed on two aspects of finance that the company work on.

Alexei and Arjun focused on risk in modern portfolio theory, which asks the question how best to weight different investments in a portfolio given their differing risks and returns; whilst Charles and Shashwat looked at pricing options and derivatives using the Black Scholes equation.  Both pairs of students made strong use of mathematics and coding in order to understand these areas.

Charles and Shashwat summarised their work as:

“Our project involved implementing and comparing several techniques for pricing options. We started by running Monte Carlo (MC) simulations (with Geometric Brownian Motion) using different parameters, producing various histograms and a predicted value of stocks over time. We then implemented Black Scholes (BS) and plotted a graph of the price of an option for BS against MC, where both techniques produced similar results. The second stage focused on delta hedging, a process where the model buys enough stock to ensure that the delta of its portfolio is always zero, which is another method for calculating the price of an option (and is used to derive BS). This was an incredible opportunity to learn from two of the top investors at Cheyne Capital, exploring quantitative finance, at the intersection of finance, mathematics and computer science.  A screenshot of the output from our code is below.”

Arjun and Alexei explain their progress as:

“In February we were lucky enough to have the opportunity to visit Cheyne Capital hedge fund, where we set on a project posed by some senior analysts. We looked at Portfolio theory, essentially deciding how best to weight the quantities of shares in a portfolio against each other. This involved Markowitz Mean-Variance analysis, which we then implemented into an efficient frontier program. This took the characteristics of 4 shares and outputted the most efficient weighting (known as the Sharpe ratio) of those four shares, as well as a graph giving the best weightings for a given level of risk.  Some sample outputs from our code are below, with the efficient frontier given by a curve and the Sharpe ratio marked as a point on this.”

The pupils are incredibly grateful to Ahrash and Fabian from Cheyne Capital for spending time with them and introducing them to such an interesting and exciting application of their studies in Mathematics.

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