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Homework answers / question archive / FIN 4615 & 5615 - Derivatives Securities Final Project Overview This project’s primary purpose is to use the Black-Scholes option pricing model to value a call option for a company
FIN 4615 & 5615 - Derivatives Securities Final Project Overview This project’s primary purpose is to use the Black-Scholes option pricing model to value a call option for a company. Requirement Part I: The Company Select a company in which you are interested. For simplicity and easier access to data, I recommend choosing a publicly traded company in the United States for at least one year and not paying dividends. Start with an overview of the company. Provide a general history and discussion of its business and product or service offerings. Discuss the recent stock market performance of this company. Discuss any major recent events of the company. How might those events affect the valuation of the company’s options? For example, the impact on the company’s stock price and volatilities. Part II: The Option Discuss the recent trend of the yield on the U.S. Treasury securities. How might it affect the valuation of the company’s options? Discuss the recent major news related to this company’s stock options. Choose an at-the-money call option of this company that has time to expiration around one month to three months and value this option using the Black-Scholes option pricing model. Please explain your choice of inputs, especially how you calculate the historical volatility. Select two to five options with the same time to expiration as the call option you are valuing and estimate the implied volatility. Please select options with relatively high trading volume and open interest. Is the implied volatility higher or lower than the historical volatility you calculated? What might be the potential reason? Select two to five at-the-money options with different time to expirations and estimate the implied volatility. Please select options with relatively high trading volume and open interest. What can we learn from the implied volatility? Based on your analysis, what is your prediction of this company’s stock price and option price trends in the near future? Are there any trading strategies you would consider related to this company that involves option? Structure and Content of Report: 1. Introduction - The introduction sets the stage for the work to follow - Please use one paragraph to describe the key issue(s) that your analysis addresses 2. Analysis - The text of your analysis will constitute the bulk of the written presentation. - Please explain the process you took to compute the required metrics and provide clearly articulated responses to the questions posed. - Please include in the appendices all supplementary figures, tables, and any other data necessary to support the analysis. Please be sure to reference information in appendices in the text of your report. 3. Conclusion - Please use one paragraph to summarize the key results of the analysis and your recommendation. 4. Appendix - All supplementary figures, tables, and any other data necessary to support the analysis The text of your report should be about 2 to 3 pages. The page limit does not include appendices, which should be at the end of your written analysis.
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