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Unformatted text preview: ECE514 Random Process Fall 2010 HW6  Due: December 14, 2010 Contact barondror@ncsu.edu Submission in groups of up to 4 students is strongly encouraged. Electronic submission to barondror@ncsu.edu In this homework, we evaluate a financial investment strategy, which demonstrates a practical application of Brownian motion. This strategy is based on options. Without going into excessive detail, a call option as a financial contract that allows you to buy a stock, index, or other financial tool S at some future time t for a given price X . 1 The time t is called the expiration date of the option, and X is the strike price at which we can buy the stock. You can think of an option as an insurance policy that allows us to buy S at time t for price X . In our problem, we consider options on the S&P500 stock market index, which is a widely used index that represents 500 leading American companies. We assume that each trading day, we can buy options whose expiration dates are 20 trading days into the future (this is approximately a month), and we also assume that the strike price is equal to the current price. (a) : [getting data] To download the S&P500 index, go to Yahoos finance page: http://finance.yahoo.com. To the right are Market Summary plots; click on the S&P500. You will see Historical Prices to your right. If youre in a hurry, heres the link: http://finance.yahoo.com/q/hp?s=GSPC+Historical+Prices Make sure to download data as far back as possible (January 3, 1950). Save the data; I used the CSV format. Next, open the CSV this can be done in Excel. Note that the first row describes the different columns. We are interested in the Close column, which is the closing price of the index for each day since January 3, 1950. (Note that data are not provided for days when there was no trading; this is fine, we are only interested in days when the stock market was open.) In order to import this data into Matlab, one approach is to use Matlabs textscan command. A simpler approach that is adequate for a homework exercise is to save the column of interest into a CSV or text file. It is then straightforward to read the data into Matlab using thefile....
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 Fall '08
 Krim

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