The assignment is comprised of 2 tasks. Please complete BOTH tasks, but submit each one separately. Use Bloomberg to estimate the prices and the Greeks of the following stock index options. Do it by own your works. As outlined in the Assignment Submission information below, please name each task as StudentID_CourseCode_Question, e.g. 1234567_ECON5009_1.doc & 1234567_ECON5009_2.doc, and use the separate submission links below. The paper version of your assignment should be submitted as TWO separate documents - one for Task 1 and one for Task 2. Each should have its own barcode coversheet. For the first task of the assessment, the word limit is 1200 words. As stated in the assessment, you need to use Bloomberg in the computations. For the second task of the assessment, the word limit is 800 words.

TASK 1

Black Scholes Model

First initiated by Myron Scholes, Fisher Black, and Robert Merton, the concept stands out as one best techniques of determining fair prices of options. One of the axioms of the model is that the volatile prices of stock take a log-normal distribution (Edeki, Ugbebor, and Owoloko 2015). The assumption is hinged on the fact that stock prices cannot take negative values. The framework incorporates five key components namely volatility, stock expiry time, current stock value, vulnerability-free rate, and the strike option price. It is applied in the assumption that all the five components are constant in nature.

The model is majorly used to compute the implied volatility of stock prices. When the venture capitalists anticipate that the economy is on the verge of an economic downturn, volatility tends to surge. In such situations, the investors believe that it is highly risky to place their confidence on the stocks. On the other hand, an expected economic boom triggers a downward trend in the volatility of options. This is in line with the investors’ belief that holding onto the stocks is bound to fetch high prices and consequently, reap optimal benefits.