ECON 5009 Financial Markets, Securities And Derivatives

ECON 5009 Financial Markets, Securities and Derivatives , University of Glasgow, UK

Task 1

(a) Use Bloomberg to estimate the prices and the Greeks of the following stock index options

Strike  2955  2980  3015
Call - 29 days
Put - 56 days

Note that these are S&P 500 Index Options and the value of the index today is assumed to be 3000. The options should be priced within a Black-Scholes-Merton framework using the following inputs: rate of interest 1.00% per annum, dividend yield 0.00%, and volatility 14.00% per annum. 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

(a) Describe and critically review the Single-Index Model.

(b) Use Bloomberg to collect data on 4 stocks from the S&P 500 Index. Assuming you form a portfolio by investing an equal amount of funds into each stock. Assume no dividends are paid. Estimate:

(i) The beta of your 4 stocks; comment on your results

(ii) The beta of your portfolio; comment on your results

(iii) The market risk and nonmarket risk; comment on your results.