Financial Markets, Securities and Derivatives

Centre for Economic and Financial StudiesFinancial Markets, Securities and Derivatives (ECON 5009)Semester OneCourse coordinator: Dr Yixiao MaoIn Course Assessment QuestionsWord limit: 1200 words for Task…

Centre for Economic and Financial StudiesFinancial Markets, Securities and Derivatives (ECON 5009)Semester OneCourse coordinator: Dr Yixiao MaoIn Course Assessment QuestionsWord limit: 1200 words for Task 1 and 800 words for Task 2Task 1 (60%)(a) Use Bloomberg to estimate the prices and the Greeks of the following stock index optionsNote that these are S&P 500 Index Options and the value of the index today is assumed tobe 3000. The options should be priced within a Black-Scholes-Merton framework using thefollowing inputs: rate of interest 1.00% per annum, dividend yield 0.00%, and volatility14.00% per annum. State clearly each necessary step requested to compute the price andthe Greeks of the options above.(b) Write a short report with a critical summary of the results.Task 2 (40%)(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 aportfolio by investing an equal amount of funds into each stock. Assume no dividends arepaid. Estimate:

(i) (ii) (iii) The beta of your 4 stocks; comment on your resultsThe beta of your portfolio; comment on your resultsThe market risk and nonmarket risk; comment on your results.

Strike 2955 2980 3015Call – 29 daysPut – 56 days

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