LOVELY PROFESSIONAL UNIVERSITY

DEPARTMENT OF MANAGEMENT

Report on Summer Training

RISK MANAGEMENT OF EQUITY MARKET

AND
CLAIM SETTLEMENT POLICIES OF INSURANCE RETURN

Submitted to Lovely Professional University

In partial fulfillment of the

Requirements for the award of Degree of
Master of Business Administration

Submitted by:
ABHAY KUMAR SINGH
10901064.

DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
 ACKNOWLEDGEMENT
I take this opportunity to thank all those who have helped and inspired me during the course of
time of this project without which the successful completion of the project would not have been
possible.
I wish to convey my special thanks to Mr. Ujjawal Singh (Director), Mr. Arnab sen gupta
(Executive Manager), my company project guide Mrs. Vinamrta Prasad (HR Executive) who
have helped me directly or indirectly in my difficulties at Shivpra financial solution pvt. Ltd.,
Head Office, Ranchi. who have been a constant source of inspiration and encouragement to me.
I wish to express my deepest and most sincere thanks to my Faculty Guide, Prof. Manoj
Kumar, who has continuously guided me throughout this project.
Last but not the least I would like to thank my fellow management trainees from LPU Jalandhar.
By interacting with them, I was able to generate more meaningful ideas that have enabled me to
further complete this project successfully.

ABHAY KUMAR SINGH

10901064
 TABLE OF CONTENT
Acknowledgment……………………………………………….3
Abstract……………………………………………………… 6
Executive Summary………………………………………….…7
Introduction…………………………………………………… 8

Company Profile……………………………………………….10
Indian Equity Market…………………………………………12

Types of Derivative Market……………….…………………..17

ns…………………………………………………………10
Options Strategies…………………………………..……………23
 addle ……………………………………...………………………..37

Black Scholes Options Pricing Model………………..…………………………46

Findings.……………………………………………...…………………………..51
Conclusions ………………………………………………………………………52
Recommendations ……….………………………………………………………54
References ……………………………………………………………………….55
Annexure ………………………...………………………………………………56
Glossary …………………………...……………………………………………..70 Risk
Management in Equity Derivative Market 6
 ABSTRACT
Derivative Market is high risk high return segment of an equity market. The past decade has
witnessed a massive growth in the use of financial derivatives by a wide range of corporate and
financial institutions. This growth has run in parallel with the increasing direct reliance of
companies on the capital market as the major source of long term funding. In this respect,
derivatives have a vital role to play in enhancing shareholder value by ensuring access to the
cheapest source of funds.
During this project I got to know different ways or different strategies by using which investor
can minimize the loss. An individual always faces the problem as to which strategy investor
should use in different market condition. During this course of Internship I had gather a good
knowledge of cash and derivative market. This knowledge was helpful in my project to achieve
the objective.
I had applied 10 strategies during trading hour on investor from this 10 strategies, 8 strategies
was turned out in profit whereas remaining 2 strategies is in loss. By using Black Schole model I
had calculate the option prices from which the investor or RM will get to know whether to buy
the option or not. So that investor gets the signal of risk while investing in the option market.
 EXECUTIVE SUMMARY
This is the report submitted by Abhay kumar singh studying at Lovely school of business,
jalandhar in the partial fulfillment of the requirement of MBA Program, carried at shivpra
financial solution pvt .Ltd, Ranchi . Shivpara financial solution pvt.ltd.is engaged in providing
financial services across the Jharkhand

The project is on ―Risk Management in Equity Derivative Market‖ and the objective of the
project is to identify, understand and analyze the strategy which helps to minimize the Risk in
the Indian Equity Derivative Market. Using the model generated at the end of the project will
helpful for the investor by indicating whether to invest in the option or not.
Equity market reforms are a major constituent of the overall economic reforms in India and
considering the growing surge in the broking firm, the objective of the project is such set so that
it enables to capture the skills required for forming the bases of the organization.
To achieve the objectives of the project, training was undergone in to gain practical knowledge
and learn about derivatives and its applications and also to know the behaviors of investor during
trading hours. The training enabled to learn the concepts of the derivatives and the importance of
various tools that were used to undergo the activities to invest in equity market
 1.1 INTRODUCTION
A country is termed prosperous if its economy is doing well. There are a large number of
influencing factors which determines the prosperity of the economy, likePer-capita income of
people, GDP, Imports & Exports, Forex Reserves, etc. In short itcan be told that Financial
Market is an important contributor to the economy. In thisfinancial market, capital market plays
a significant role. The capital market alwaysreplicates the power and ability of the investors and
their faith in the market. Earlierthe capital market was shy. But market deregulations, growth in
global trade andtechnological development have revolutionized the financial market place. A
byproductof this revolution is increased market volatility, which has led to acorresponding
increase in risk management products. This demand is reflected in thegrowth of financial
derivatives and derivatives market. But, question arises, are thesederivatives risk free? As
world’s one of the greatest investor once said, “Risk is a part of God’s game, alike for man
and nation”
Thus it can be said that these risk management instruments are not risk free.This indicates the
essence of risk management of derivatives.

1.2 RATIONALE
In this world of uncertainty risk management has an immense importance forcorporate. Financial
derivatives which are introduced with a prime objective ofhedging risk, whenused for
speculative purposes resulted with increased risk. Thus,risk management of financial derivatives
is a major area of concern. In case of anexchange, as exchange plays the role of counterparty for
both buyer and seller, it ismore exposed to counterparty risk and all other risk associated with the
financialderivatives. This leads to the essence of risk management of derivatives in
exchanges.The various tools used by the exchanges for risk management includes
margins,position limits, and various rules and regulations laid down by the regulatory authority
for derivative trading. All these process of risk management is done by wholly computerized
process and with specific software. The inclusion of latest technology has made the risk
management process more reliable. The risk management of derivatives not only secures Stock
Exchanges, but also creates confidence in the minds of the investors. This enhances more
investments in the derivatives market, which leads to business prosperity. Thus the most of the
exchanges have their risk management procedure for risk management of derivatives.

1.3 OBJECTIVE

On the above outset, the following are the laid down as the objective of this study,

I. To study the risk associated with derivative market and derivative trading
II. II. To study the risk management tools used in Bombay Stock Exchange Limited for
mitigating these risks.
III. To study the margining system for derivatives.
IV. To study the software used for margining system.
V. To do comparative analysis of the risk management process of BSE with that of NSE
VI. To give suggestion and recommendations for improvement in risk management
process of derivatives in BSE.

1.4 RESEARCH METHODOLOGY

1.4.1 SCOPE
The scope of this project is confined to the study of risk management ofderivatives in BSE, about
the margining system. The software used for this purpose,details about the process and tools of
risk management and various problems faced bythem.

1.4.2 TIME FRAME

The project has been undertaken on the basis of information provided by BSE’sderivatives
segment which consists of the daily prices and volatility of derivativesegment of BSE for the last
ten years. This data consist of details about the daily prices of derivatives products and
proportion of investment in each and every derivatives instrument.

1.4.3 SOURCES OF DATA

The data has been collected from both primary and secondary sources. Theprimary data are
collected by interviewing brokers and some officials of BSE. Somedata are collected from
personnel of the various departments in BSE, like Product and Strategy Department, Bank of
India Shareholding Limited. (Clearinghouse of BSE). The secondary data consists of books and
journals provided by BSE, SEBI circulars and Guidelines. This also contains the data of
derivative segment of NSE, which was
collected from the website of NSE.

1.4.4 TOOLS AND TECHNIQUES

The data so collected were classified and tabulated for analysis and interpretation. The tools and
techniques used in this project are all computerized programming. The data are programmed in
software like visual basic, MATLAB, etc, to find the implied volatility and price scan range.
Finally all these implied volatility and price scan range are processed in PC – SPAN (software
for calculation of margin) to find out the margin requirement of different participants of the
derivative market. The turnover of derivatives segment of BSE and NSE is drawn in graphs to
compare these two markets.

1.5 LIMITATION
Some of the limitations that are faced during the project are;

1. The information collected is limited by the authenticity and accuracy of information provided
by the interviewees. The data collected from the websites are limited. Certain information was
not disclosed to maintain the secrecy of the exchange.

2. The time predefined for this project was 8 weeks, which is very short forcovering such a big
project.

1.6 CHAPTERISATION

This project is about the risk management of derivatives in BSE. Various technicalities that are
involved in this process has been extensively discussed and dealt with this report. The report
contains the following six chapters, which are summarized below.Chapter one begins with the
introduction to the project report, stating the importance, objectives and research methodology
adopted. Limitations inherent to the project are also laid down.

Chapter two deals with the history and potentiality of Bombay Stock Exchange Limited. ,its
mission and vision are also laid down. Major events that shaped the securities market in the
country and helped BSE to grow have been mentioned.
The third chapter deals with the conceptual study of derivatives
and its mechanism. A snapshot of international and Indian derivative market was also laid down.
A brief idea about equity derivatives was also mentioned in this chapter.

Chapter four contains the conceptual idea of risk management process. This chapter
also throws light on the essence of risk management; risk associated with derivatives
trading and risk management of derivatives.
The fifth chapter comprises of analysisand interpretation part.
Chapter six contains the summarized list of all important findings. And finally, the ultimate
chapter aims at providing some relevant suggestions and recommendations to improve the
present market position of BSE.