Please do all the calculations in a spreadsheet. You can format the spreadsheet and print it
out for submission.
Assignment 1 based on Chapter 5
1. It is well understood that stocks would beat bonds in the long-run. The goal of this exercise
Options Market: Introduction
1. Introduction to option terminology
2. What are the 4 basic option strategies and its
3. What are the various combination option
strategies and its payoff/profit profile
APT and multifactor
models of risk and
is the model of expected returns given
Arbitrage Pricing Theory (APT)?
are the assumptions underlying APT?
Given mispricing, how do you generate
is the equilibrium relationship between
risk and return?
Capital Asset Pricing Model (CAPM)
CAPM is the best-known and mostwidely used equilibrium model of the
Principles behind risk-
Optimal risky portfolios
(,) for all the risky securities, how to
identify the optimal risky portfolio? (Portfolio
Portfolio could be passive or active
takeaway: optimal risky portfolio is
the one wi
Risk Aversion and Capital
Allocation between Risky
and Risk Free Assets
is the optimal mix of capital
to be allocated between a risky
portfolio and a risk-free asset?
takeaway: It is the
combination that maxi
to construct the optimal risky portfolio
for an active investor?
CAPM vs. Single Index Model
CAPM (Chap 9)
S.I.M. (also called market model)
is about expected returns (ex ante, forward lookin
Learning About Risk
and Return from the
What are the different measures of risk and return
and when to use them?
What is the historical evidence on the link between
risk and return?
1) What are the factors that affect option prices?
2) What are the boundaries within which the option
prices stays before expiration?
3) How do you price options?
Binomial vs. Black-Scholes
Totally 8 types o