Compare the market and model price of a stock.

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

1. Compare the market and model price of a stock.

Chose two stocks from s&p500 (excluding Apple, Google Microsoft, Facebook), check on yahoo-finance the price of a call with an expiration between 30 and 60 days, and a strike between 5% and 20% above the current stock market price.

Take a screenshot, making sure that the price, name of the stock, and expiration are clearly visible.

Using the material of lesson seven, write a new python code following these steps:

[20 points]

 

 

● Price the option that you have just selected using a Montecarlo simulation with the control variates method

● Make sure that the standard error of the simulation is lower than 0.1. hint: you need to simulate a high number of paths

● Include the screenshot you took before in the Jupiter notebook by creating an empty Markdown cell, and drag-and-drop the image file into the empty Markdown cell.

● Using a print statement, show the difference between your price and the market price ( example: print(f"the market price of {stock} is {price} and the Montecarlo simulation price is {montecarloprice}")

● Remember to include in the notebook only the code that is strictly necessary in order to price the option.

● The model’s interest rate is equal to zero.

● Add comments above every cell of code, to describe accurately what your code does.

 

● A difference between the Montecarlo model and market price is normal. but if it is too big, you have probably used the wrong parameters. For example, if your price is 10$ while the market price is 50$, you should check your model again.

●

 

2. Build an investment strategy to invest in a stock for no more than four months a year.

Write the appropriate python code with the following characteristics: [20 points]

 

● One single holding period per year is possible, therefore, we are in position only in consecutive months.

● You cannot choose apple, Microsoft, Google or Facebook.

● try to build a profitable investment strategy taking advantage of a possible stock seasonality.

● You are free to modify the code we have used in the lectures, for example, you can add charts, to better show your results and analysis.

● The code has to include only what is strictly necessary to answer the question, and every cell of the code must be commented.

● If the stock you have selected does not show any seasonality, pick a different one.

● If two strategy looks similar, prioritize that one with the equity that looks steeper and smoother.

● The backtest has to be at least 10 years long, the last 3 of which, are more important, because being more recent, are more likely to be similar to the nearest future..

● The profitability of the strategy will influence the final mark of the question.

●

● Comment the results (just a few lines, no more than 100 words, in a markdown cell)

 

 

3. File workspace.txt contains some trading rules that you will use in the following questions.

Modify it according to it to the following points :

[5 points]

● Initialize objects to represent the three advanced moving averages Alma, Kama and Frama.

● Add the piece of code that allows you to trade each time exactly 10000 USD of a given security.

 

 

4. Using any of the rules contained in the attached file workspace.txt, build and test two profitable trading strategies.

The strategy must have all characteristics below:

[25 points].

● The backtest has to be at least 10 years long, the last 3 of which, are more important, because being more recent, are more likely to be similar to the nearest future..

● The strategy can trade long, short, or both long and short.

 

 

Attachments:

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