timer Asked: Apr 26th, 2020

Question Description

you have to chose two company for example (Ford and GM) and please read the word I uploaded here carefully and if you have question ask me please.

Unformatted Attachment Preview

Historical Vs. Implied Volatility (Due on April 26th 2020) Choose two stocks from the same industry to minimize the influence of other confounding factors. You choose the industry that you are relatively more familiar with, and then estimate the implied volatility and historical volatility of the two stocks. The former is estimated based on their option values (refer to Ch. 13 for implied volatility). For convenience and especially if you are using my program, choose stocks with zero or low dividend yield (please specify the dividend yield in your report). Information needed here can be obtained from major financial websites such Yahoo Finance, but you can also use our Bloomberg terminal. Since using Bloomberg terminal requires a bit extra effort, I will add 5 points if you use it. Answer the following questions, and the discussion of each is limited to one page each question. 1) Briefly discuss the two firms of your choice, and in your discussion, you must include risk analysis and financial ratios (especially those related to risk). Which firm seems riskier? 2) Estimate the historical standard deviation for the two stocks: You need to obtain historical stock prices, either from Bloomberg or Yahoo Finance. Stock prices need to be transformed into returns. For example, You can calculate the logarithmic return ln(st/st-1) or the arithmetic return = (stock price on day T - stock price on day T-1)/ stock price on day T-1. A minimum of 30 returns is required. The standard deviation (SD) of Stock Returns can then be estimated using EXCEL function STDEV(range of return data) or the following formula: .Convert the SD to annual standard deviation; if you use daily returns, the SD you obtain is a Daily one; you need to transform it to Annual SD = Daily SD * (252) 0.5 Describe how you got the answer. Which stock has higher historical volatility and does it make sense? 3) Implied volatility: For each of the stocks, find the market values of three call options on the stock (from sources such as Yahoo Finance): One should be near the money, and the other two in and out of the money—use options with considerable trading volume; the reason is that if an option is not heavily traded, its market price might not adequately reflect its true value or the market price is simply a stale price. You should also avoid options with just a few days to expiration, since the value of these options do not strongly depend on volatility. Use either the text’s software or my program to compute the implied volatility (be sure to enable Macro if you are using my program). Show me how you get the answer by including your inputs (S, K, r, T) and specifying the program you are using. Bloomberg terminal actually computes implied volatility too, but because we can’t see the program, you are not allowed to use Bloomberg for the purpose of estimating implied volatility. Which stock has higher implied volatility and does it make sense? 4) Overall conclusion ...
Student has agreed that all tutoring, explanations, and answers provided by the tutor will be used to help in the learning process and in accordance with Studypool's honor code & terms of service.

This question has not been answered.

Create a free account to get help with this and any other question!

Similar Questions
Related Tags

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors