Assignment 3
You have also been approached by a friend who is evaluating an investment problem. Knowing that you have studied finance, you are asked to help him answering the below questions.
• Choose 1 firm that is listed on New York Stock Exchange or Nasdaq. Your task is to calculate the theoretical price for two call options; one exercising in approximately 1 month and one exercising later than 3 months from now using the Black-Scholes pricing formula. Look up options for your firm via yahoo finance (finance.yahoo.com) that match these exercise times. Options are found as a heading on the left-hand side under on your screen when you are at the main page for the firm at yahoo finance.
• Use yahoo finance to download 1 year of historical stock prices for the firm you have chosen, and use it to calculate the historical volatility of the stock. The volatility calculation shall be based on the daily returns. You need to annualize the volatility measure(𝐷𝑎𝑖𝑙𝑦 𝑉𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦√1𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑎𝑦𝑠 𝑖𝑛 𝑠𝑎𝑚𝑝𝑙𝑒⁄⁄) . Assume that the yield on a 3 month US governmental treasure bond is 1%. Annualize this yield for the use of it in the option valuation model. Note that the downloaded file is a.csv-file. You need to rename it to a.txt file before open it in Excel. Use the file as a clipboard and make all your calculations in a separate Excel workbook.
• Use yahoo finance to look up the market prices for your two call options to compare with your theoretical prices.
• Write a 2 page report where you analyze the differences in the market prices for the options and the differences between your theoretical prices and the market prices. The analysis shall point out reasons for why there are differences between the prices. Use chapters 20-21 in Berk and DeMarzo “Corporate Finance” as reference for the analysis and calculations.
Solve the assignment in groups using Microsoft Excel and write the report using Microsoft Word. Use the uploaded template for assignment 4 when solving the assignment and clearly state your names (surname in capital letters), student numbers (Swedish social security number) and email in the workbook where stated. State the same in the word document
Deadline: Saturday 2019-12-21 before 23:59 hrs.