ASSESSMENT CASE PAPER ANALYSIS / TUTORIALOUTLET DOT COM ASSESSMENT CASE PAPER ANALYSIS / TUTORIALOUTLET DO | Page 2

information on the S&P
500 index and then click on ―Historical Prices‖. Change the start date
to Jan 01, 2000, the end
date to February 28, 2014, and click on "Monthly" and
then "Get Prices‖. We will only be
interested in the "Close" column, which gives the value of
the S&P 500 at the close of trading
on the last day of each month. Go to the bottom of the page and click
on " Download to
Spreadsheet" and save the data in an Excel file.
Now open up your spreadsheet file. (It will be easiest if you re-order
the data because Yahoo
gives it to you in reverse order - you can use the Sort command in
Excel to do this.) Create a
new column in Excel that measures the change in the natural
logarithm of the S&P 500 from
one month to the next, i.e. the monthly returns on the S&P 500.
Compute the average and standard deviation of returns. (You should
get 0.0017 as the
average return, i.e. 0.17% per month). The variance of returns is the
standard deviation squared.
If you multiply your estimated variance by 12, you will get an
estimate of the annualized return
variance (σ2) that you can use in computing the Black-Scholes option
price.
On the following page, you will find some quotes on S&P 500
options from cboe.com on
March 3. These are European options and represent just some of the
traded options on March
3. Calculate the Black-Scholes price for call options with strike prices
of 1800, 1850, and
1900 that expire in April, May, and June. It is easiest to do this in
Excel. The NORMSDIST
function can be used to get the appropriate values from the cumulative
normal distribution, i.e.
N(d). Compare the predicted Black-Scholes price to the actual price in
the market. You can try