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GraduateAssignment - options That is 1 Calculate σ 1 2 12...

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FIN 659 An Introduction to Derivatives Graduate Assignment The Expected Earnings Announcement Impact on Stock Prices This assignment is meant for you to conduct a short empirical study on the use of the Black-Scholes option pricing model to forecast the expected volatility around earnings announcements for companies whose common stock is publicly traded. Each student should select two distinct companies to perform their study. There should be no overlap between the companies selected by all students. Options must trade on the common stocks of these companies. You must use Bloomberg to find the data. Select two earnings’ announcement dates for each company. You will then have four event dates (2 companies x 2 earnings announcement dates). Perform the calculations detailed in the article provided for two time periods; two weeks before the announcement and one week before the announcement and perform the calculations separately using puts and calls. For each stock you will have four sets of events (2 time periods x 2 types of
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Unformatted text preview: options). That is: 1. Calculate σ 1 , 2 , 12 , E (| r |) , E (| Δ S |) for each case. 2. Calculate the actual one day return on the trading date post announcement (if the announcement was after trading hours) or during the announcement date if during trading hours. Calculate also the actual price change. Δ S . 3. Compare the actual one-day price return and price change to the forecasted one using the option model for the two time periods and the two types of options. 4. Is there any indication that a “positive” announcement is forecasted better with calls and a “negative” announcement is forecasted with puts? Do the write-up and support your conclusions with the empirical data. 5. Your report should be no longer than two pages. 6. You have one week to complete it from the time it was handed to you. It is due in class. Late reports will carry an entire grade penalty (A to B, B to C). Resources: Bloomberg, www.888options.com , www.cboe.com ....
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