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SECOND CITY OPTIONS CASE
Derivative Security Markets
Instructions:
In this case analysis, you will need to be able to calculate the BlackScholes model,
the historical volatility, implied volatilities, and analyze option strategies. The BlackScholes model
can be calculated using the Excel spreadsheet BSMbin8e.xls. The historical volatility can be
calculated using the Excel spreadsheet hisv7e.xls. Alternatively, you can calculate the volatility
directly from Excel. The option strategies can be analyzed using the Excel spreadsheet stratlyz7e.xls
or you can create your own spreadsheet and graph. In preparing your analysis, you are to assume the
role of Carla Shilling and provide the information as requested in bold. For each new part of this case
(as indicated by a Roman numeral), label your answer with Roman numerals that correspond to these
instructions. Your written analyses should be prepared using a wordprocessing package and copy
the relevant results from excel to the word file. You should print the word file out. You should strive
to be as efficient as possible in your writing (short in length but cover pertinent details).
Due Date:
The last class of the semester in the classroom. This project is group work. The groups are
the same as the Stocktrak Groups, unless special arrangements have been made.
Disclaimer:
This class does not suggest that the technical trading strategies used by the mockfirm are a
valid technique for profitable trading. Remember, if markets are efficient then such trading should
not yield abnormal profits for the risk that is taken (abnormal riskadjusted profits).
Rather the point of the exercise is for you to analyze options and think about trading
strategies for a particular market forecast. Further, the project illustrates that options can be used to
match future payoffs to very specific forecasts (rather than simply bullish or bearish). This project
also illustrates the use of the BlackScholes option pricing model, implied volatility, and the
importance of the volatility estimate in pricing options.
The option prices and market scenario in this case should be regarded as hypothetical.
Acknowledgements and Thanks:
This case was modified from a case provided by Don M.
Chance, Professor, Louisiana State University.
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 Spring '08
 MCKEON
 Options, Volatility

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