Task 1 (60%) (1000 words)?
(a) Use Bloomberg to estimate the prices and the Greeks of the following stock index options
?Note that these are FTSE-100 Index Options and the value of the index today is assumed to be 6,100. The options should be priced within the Black & Scholes framework using the following inputs: rate of interest 1.50%p.a., dividend yield 0.00%, and volatility 4.00% p.a. ?State clearly each necessary step requested to compute the price and the Greeks of the options above.
(b) Write a short report with a critical summary of the results. ?
Task 2 (40%) (600 words)
?Consider the Single Index Model (SIM). ?
(a) State and comment on all the main assumptions underlying the SIM.
?(b) Use Bloomberg to collect data on 4 stocks. Assume that you invest an equal amount of your wealth on each stock and build up a portfolio. Estimate:
(i) The beta of your portfolio; comment your empirical results ?
(ii) The market risk and non-market risk; comment on your results. ?
State all your assumptions and computations. ?
For the first task of the assessment, the word limit is 1000 words. As stated in the assessment, you need to use Bloomberg in the computations.
For the second task of the assessment, the word limit is 600 words. For the 4 stocks: – They should belong to the same index -Your dataset should be daily and for at least 1 year – For the sake of time, if can choose to use an another dataset except Bloomberg. In that case you need to state the data source and be sure that the source is reliable.
Reading:
Elton et al (2006). Modern Portfolio Theory and Investment Analysis, 6th edition
Hull, John (2008). Options, Futures and Other Derivatives, 6th edition, Prentice Hall
SPX Index AAPL US Equity IBM US Equity GOOGL US Equity KO US Equity
Average returns 0.007% 0.009% -0.012% 0.092% 0.001%
Variance 0.009% 0.026% 0.018% 0.025% 0.008%
AAPL US Equity IBM US Equity GOOGL US Equity KO US Equity
Regression ALPHA 0.0007221% -0.000192049 0.000849475 -0.0031625%
Regression Betas 1.097651319 0.986845522 1.013198533 0.605391158
Average alpha 0.000158256
Average beta 0.925771633
Expected return = 0.000224673
Market Risk 0.000103645 8.37758E-05 8.83099E-05 8.98164E-05
Non-Market Risk 0.000158645 9.1277E-05 0.000156756 4.89382E-05
Market Risk of Portfolio =
Non-market Risk of portfolio
