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State and comment on all the main assumptions underlying sim

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Reference no: EM13865945

Task 1

(a) Use Bloomberg to estimate the prices and the Greeks of the following stock indexoptionsStrikes 5,800 5,500 5,400Call-3monthsPut-6monthsNote that these are FTSE-100 Index Options and the value of the index today isassumed to be 5,700. The options should be priced within the Black & Scholesframework using the following inputs: rate of interest 1.00%p.a., dividend yield 0.00%,and volatility 6.00% p.a.State clearly each necessary step requested to compute the price and the Greeks of theoptions above.

(b) Write a short report with a critical summary of the results.

Task 2

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 ofyour 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.

(iii) The covariace matrix; comment on your resultsState all your assumptions and computations.

Reference no: EM13865945

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