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Unformatted text preview: ECE514 Random Process Fall 2010 HW6  Due: December 14, 2010 Contact [email protected] Recommended reading: Please read Sections 8.1–8.3 and 9.1. The following problems fit well into the material we covered in class. Solutions appear in the course notes, and you can work on the problems yourself: Problems 8.2, 8.6, 8.8, 8.12, 8.18, and 9,4. Submission in groups of up to 4 students is strongly encouraged. Electronic submission to [email protected] 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 Yahoo’s 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 you’re in a hurry, here’s the link: http://finance.yahoo.com/q/hp?s=ˆGSPC+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 Matlab’s...
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This note was uploaded on 01/25/2011 for the course ECE 514 taught by Professor Krim during the Fall '08 term at N.C. State.
 Fall '08
 Krim

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