Stock prices and FTSE100 prices
Choose six UK companies that have options written on them. You will need sufficient data to be able to adequately discuss and illustrate the issues developed in the assignment, so about six should be enough. However, if you find your results are limiting your scope for discussion you may need to run the techniques for a few more companies to get additional results.
Download 61 months of daily, weekly and monthly stock prices for each of your six companies, and also download daily, weekly and monthly prices for the FTSE100 stock market index.
Stock prices and FTSE100 prices can be obtained from Yahoo Finance UK or other free website, DataStream or Bloomberg. Option prices can be obtained from the Euronext.LIFFE website at:
or from Bloomberg. The Euronext.LIFFE website is a free website, but you will need to subscribe to the site to gain access to the data. The data on option prices that you want is as shown in the Lloyds Banking Group example on the following page.
Step 1: For each of your companies and for the FTSE100 index compute the daily, weekly and monthly returns using your 5 years of data.
Step 2: Carry out the runs test and the serial correlation test on the daily, weekly and monthly stock and index returns series. Carry out a normality test on the daily, weekly and monthly returns of each company and of the index.
(Steps 1 and 2 are worth 25% of the assignment-1 grade)
Step 3: Critically discuss the results you obtained in steps 1 and 2.
Relate the results you have obtained to the underlying assumptions made in option pricing theory, namely that stock returns are normally distributed.
Interpreting statistical results is a matter of judgement and organised commonsense. It is not a technical matter of applying another formula.
(Step 3 is worth 25% of the assignment-1 grade)
Step 4: Compute the theoretical value of a selection of calls and puts written on your stocks using the Derivagem options pricing software. Also compute the theoretical value of one call option and one put option using the Black-Scholes formula.
Compare the theoretical values and current market prices of the options. On the basis of this (limited) piece of empirical research, do market prices appear to be consistent with theory? Critically discuss.
(Step 4 is worth 25% of the assignment-1 grade)
Step 5: Calculate the volatilities implied by the market prices of the options, using Derivagem. By calculating implied volatilities on selected options, do you find evidence of mispricing in the options market? If so, explain at least two strategies for exploiting this apparent mispricing. Critically discuss.
(Step 5 is worth 25% of the assignment-1 grade)
Write a report. Your report should contain:
(1) A clear summary of your results.
(2) A brief and clear explanation of how you carried out the calculations.
(3) A critical discussion of your results and conclusions.
The requirements (1), (2) and (3) are very important. Make sure you try to achieve these in your written report.
For example, using clearly presented tables to summarise your results in (1) is good. Spending pages and pages describing in detail what the reader can clearly see from the tables is bad.
If you write a poorly structured report with a bunch of spreadsheets/printouts attached at the end, it is very difficult for the examiner to know what your results are, whether you have carried out the calculations correctly, what your conclusions are, and in general, whether or not you understand what you are doing.
Your aim in writing your report must be to convince the reader that you have complete confidence in applying these techniques, that you understand the ideas behind these applications, and that you can critically discuss the results and form reasonable conclusions.
Hints and mistakes to avoid
In general, we will give help and feedback in showing how to use the techniques, but the discussion, explanation and interpretation required in the report is mostly up to you. If you add up the marks you will see that around 50% of the assignment grade is for explanation, discussion and interpretation. This should be reflected in your report.
Try to do the statistical tests first yourself, and then come to see us if you get stuck.
When discussing the results from the statistical tests and from the option pricing calculations, it is important that your report does not simply describe the results you get. Simply listing the results is something that is best done by putting them in a table.
When interpreting the results of statistical tests, you need to consider what the results say overall. This is an art, not a science. Some people think that interpreting statistical results means applying another formula. It isn’t. It is a matter of judgement, on which experts themselves often disagree. So, don’t be concerned that you do not know enough statistics to interpret the results. A lot of it is just looking at the results as a whole and using common sense.
You must interpret the results of this assignment by looking at them as a whole, and forming a judgement
Maximum word length
Your report must be maximum 2,000 words in length
As a general rule, shorter is usually better. In this kind of material it is possible to say all the important things concisely, briefly, simply and clearly.
ORDER THIS ESSAY HERE NOW AND GET A DISCOUNT !!!
Our Service Charter
Excellent Quality / 100% Plagiarism-FreeWe employ a number of measures to ensure top quality essays. The papers go through a system of quality control prior to delivery. We run plagiarism checks on each paper to ensure that they will be 100% plagiarism-free. So, only clean copies hit customers’ emails. We also never resell the papers completed by our writers. So, once it is checked using a plagiarism checker, the paper will be unique. Speaking of the academic writing standards, we will stick to the assignment brief given by the customer and assign the perfect writer. By saying “the perfect writer” we mean the one having an academic degree in the customer’s study field and positive feedback from other customers.
Free RevisionsWe keep the quality bar of all papers high. But in case you need some extra brilliance to the paper, here’s what to do. First of all, you can choose a top writer. It means that we will assign an expert with a degree in your subject. And secondly, you can rely on our editing services. Our editors will revise your papers, checking whether or not they comply with high standards of academic writing. In addition, editing entails adjusting content if it’s off the topic, adding more sources, refining the language style, and making sure the referencing style is followed.
Confidentiality / 100% No DisclosureWe make sure that clients’ personal data remains confidential and is not exploited for any purposes beyond those related to our services. We only ask you to provide us with the information that is required to produce the paper according to your writing needs. Please note that the payment info is protected as well. Feel free to refer to the support team for more information about our payment methods. The fact that you used our service is kept secret due to the advanced security standards. So, you can be sure that no one will find out that you got a paper from our writing service.
Money Back GuaranteeIf the writer doesn’t address all the questions on your assignment brief or the delivered paper appears to be off the topic, you can ask for a refund. Or, if it is applicable, you can opt in for free revision within 14-30 days, depending on your paper’s length. The revision or refund request should be sent within 14 days after delivery. The customer gets 100% money-back in case they haven't downloaded the paper. All approved refunds will be returned to the customer’s credit card or Bonus Balance in a form of store credit. Take a note that we will send an extra compensation if the customers goes with a store credit.
24/7 Customer SupportWe have a support team working 24/7 ready to give your issue concerning the order their immediate attention. If you have any questions about the ordering process, communication with the writer, payment options, feel free to join live chat. Be sure to get a fast response. They can also give you the exact price quote, taking into account the timing, desired academic level of the paper, and the number of pages.