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Posted: September 2nd, 2021
Volatility Assignment | Homework For You
The assignment will require you to extract data from two data sets provided on the LMS.
The first “S&P500 options.csv” contains daily data for traditional European S&P500 options from October 30, 2017 to November 30, 2017. The file contains details on calls and puts for the November 17, 2017 and December 15, 2017 contracts.
The second data set “S&P500.xlsx” contains daily realized volatility estimates (column B) sourced from the Oxford-Man Institute Realized Library - realized.oxford-. Column C scales the realized volatility so that it proxies close to close volatility.
QUESTION 1 (10+1+10 = 21 marks)
This question requires you to calculate part of the volatility surface on November 8, 2017 using all available strikes that range from 2500 points to 2700 points.
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A) Calculate FOUR separate implied volatility (IV) smiles using all of the provided strikes for each of the FOUR contracts i.e. i) November 17, 2017 calls; ii) November 17, 2017 puts; iii) December 15, 2017 calls and iv) December 15, 2017 puts.
Use the BSM model to extract the IVs. Further, assume a continuously compounded risk free rate of 1.30% p.a, and a continuously compounded dividend yield of 1.70% p.a.
Show all your calculations in your excel spreadsheet. Label the sheet “Surface”.
(10 marks)
B) Plot the results for each of the FOUR IV smiles on the one graph.
(1 mark)
C) Write a brief one page report outlining your findings. What can you infer from the results and are they consistent with your expectations?
(10 marks) Finance homework help
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