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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.

 

 

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