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Econometric, Option Valuation
Econometric, Option Valuation
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Mat lab code for Monte Carlo
%%%%%%%%%% Option parameters %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
S = 55; % Value of the underlying
K = 50; % Strike (exercise price)
r = 0.05; % Risk free interest rate
sigma = 0.25; % Volatility
T = 3; % Time to expiry
%%%%%%%%%% Monte-Carlo Method Parameters %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
randn(’state’,0) % Repeatable trials on/off
M=1e7; % Number of Monte-Carlo trials
%%%%%%%%%% Use final values to compute
final_vals=S*exp((r-0.5*sigma^2)*T + sigma*sqrt(T)*randn(M,1));
option_values=max(K-final_vals,0); % Evaluate the Put option options
present_vals=exp(-r*T)*option_values; % Discount under r-n assumption
int=1.96*std(present_vals)/sqrt(M); % Compute confidence intervals
put_value=mean(present_vals); % Take the average
display(put_value)
display([put_value-int put_value+int])
Matlab code for data generating FTSE 100
A s c r i p t to produce the p l o t s f o r the p r i c e s and GARCH( 1 , 1 ) o f %
% the FTSE100 , S&P500 , and NIKKEI225 i n d i c e s . %
% %
%????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????%
% INPUTS: %
% % % This s c r i p t r e q u i r e s the Datastream Toolbox %
% %
% OUTPUTS: %
% % % Figure 1 ???? The thr e e i n d i c e s d a i l y adjus t ed c l o s i n g %
% pr i c e s f r om 1990 to today ( July 2012) % % Figure 2 ???? The d a i l y c ont inous l y compounded r e turns %
% o f a l l i n d i c e s from 1990 to today ( July 2012) ,% % ove r layed by the GARCH( 1 , 1 ) c o n d i t i o n a l %
% s tandard de v i a t i on . % % %
%????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????% % %
%????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????% % Chr i s t o s De l i v o r i a s ???? OR MSc Student %
% The Uni v e r s i t y o f Edinburgh % % August 2012 %
%????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????%
% Clear e x i s t i n g data and f i g u r e s c l f ;
c l e a r a l l ;
c l o s e a l l ;
format sho r t ;
% Connect to Yahoo Finance and f e t c h data
Connect = yahoo ;
dataFTSE=f e t c h (Connect , ’^FTSE ’ , ’ Jan 1 1990 ’ , today , ’d ’ ) ;
dataN225=f e t c h (Connect , ’^N225 ’ , ’ Jan 1 1990 ’ , today , ’d ’ ) ;
dataGSPC=f e t c h (Connect , ’^GSPC’ , ’ Jan 1 1990 ’ , today , ’d ’ ) ;
c l o s e (Connect ) ;
% Ca l cul a t e d a i l y r e turns and GARCH SD f o r each index
dataFTSEret = [ 0 . 0 p r i c e 2 r e t (dataFTSE ( : , end ) ) ’ ] ;
retFTSE=f i n t s (dataFTSE ( : , 1 ) , dataFTSEret ’ , ’ retFTSE100 ’ , ’d ’ , . . .
’ retFTSE100 ’ ) ;
[ c o e f f 1 , e r r o r s 1 , LLF1 , innovat ions1 , sigmas1 ] = . . .
g a r c h f i t ( dataFTSEret ) ;
sigmaFTSE = f i n t s (dataFTSE ( : , 1 ) , sigmas1 ’ , ’ retFTSE100 ’ , . . .
’d ’ , ’ retFTSE100 ’ ) ;
dataN225ret = [ 0 . 0 p r i c e 2 r e t ( dataN225 ( : , end ) ) ’ ] ;
retN225=f i n t s ( dataN225 ( : , 1 ) , dataN225ret ’ , ’ retNIKKEI ’ , ’d ’ , . . .
’ retNIKKEI ’ ) ;
[ c o e f f 2 , e r r o r s 2 , LLF2 , innovat ions2 , sigmas2 ] = . . .
g a r c h f i t ( dataN225ret ) ;
sigmaN225 = f i n t s ( dataN225 ( : , 1 ) , sigmas2 ’ , ’ retNIKKEI ’ , . . .
v
’d ’ , ’ retNIKKEI ’ ) ;
dataGSPCret = [ 0 . 0 p r i c e 2 r e t (dataGSPC ( : , end ) ) ’ ] ;
retGSPC=f i n t s (dataGSPC( : , 1 ) , dataGSPCret ’ , ’ retSP500 ’ , ’d ’ , . . .
’ retSP500 ’ ) ;
[ c o e f f 3 , e r r o r s 3 , LLF3 , innovat ions3 , sigmas3 ] = . . .
g a r c h f i t ( dataGSPCret ) ;
sigmaGSPC = f i n t s (dataGSPC( : , 1 ) , sigmas3 ’ , ’ retSP500 ’ , . . .
’d ’ , ’ retSP500 ’ ) ;
% Create a f i n a n c i a l ins t rument f o r each index with d a i l y p r i c e s
tsFTSE=f i n t s (dataFTSE ( : , 1 ) ,dataFTSE ( : , end ) , . . .
’FTSE100 ’ , ’d ’ , ’FTSE100 ’ ) ;
tsN225=f i n t s ( dataN225 ( : , 1 ) , dataN225 ( : , end ) , . . .
’NiKKEI225 ’ , ’d ’ , ’NiKKEI225 ’ ) ;
tsGSPC=f i n t s (dataGSPC( : , 1 ) ,dataGSPC ( : , end ) , . . .
’ SP500 ’ , ’d ’ , ’ SP500 ’ ) ;
% Pl o t s the index p r i c e s
f i g u r e ( 1 ) ;
subplot 31 1;
pl o t ( tsFTSE) ;
x l a b e l ( ’Time ( date ) ’ ) ;
y l a b e l ( ’ Adjusted Close p r i c e ( $ ) ’ ) ;
subplot 31 2;
pl o t ( tsGSPC) ;
x l a b e l ( ’Time ( date ) ’ ) ;
y l a b e l ( ’ Adjusted Close p r i c e ( $ ) ’ ) ;
subplot 31 3;
pl o t ( tsN225 ) ;
x l a b e l ( ’Time ( date ) ’ ) ;
y l a b e l ( ’ Adjusted Close p r i c e ( $ ) ’ ) ;
yt = ge t ( gca , ’YTick ’ ) ;
s e t ( gca , ’YTickLabel ’ , s p r i n t f ( ’%.0 f | ’ , yt ) ) ;
% Plot the r e turns and GARCH
f i g u r e ( 2 ) ;
subplot 31 1; hold on ;
pl o t ( retFTSE) ; pl o t ( sigmaFTSE) ; hold o f f ;
subplot 31 2; hold on ;
pl o t ( retN225 ) ; pl o t ( sigmaN225 ) ; hold o f f ;
subplot 31 3; hold on ;
pl o t ( retGSPC) ; pl o t ( sigmaGSPC) ; hold o f f ;
Matlab code for FTSE 100
setdbprefs(‘DataReturnFormat’, ‘structure’)
connection = database(‘SDE_Data’, ”, ”);
cursor = exec(connection, ‘SELECT ALL Dates,Canada,France,Germany,Japan,UK,US,
Euribor3M FROM Simulation_Data ORDER BY Dates ASC’);
cursor = fetch(cursor);
close(cursor), close(connection)
SDE_Data = cursor.Data
SDE_Data =
Dates: [1359×1 double]
Canada: [1359×1 double]
France: [1359×1 double]
Germany: [1359×1 double]
Japan: [1359×1 double]
UK: [1359×1 double]
US: [1359×1 double]
Euribor3M: [1359×1 double]
fields = fieldnames(SDE_Data);
dates = SDE_Data.Dates;
countries = fields(2:end-1);
yields = SDE_Data.Euribor3M; % daily effective yields
yields = 360 * log(1 + yields); % continuous, annualized yields
for i = length(countries):-1:1
prices(:,i) = SDE_Data.(countries{i}); % daily closing prices
end
figure, plot(dates, ret2price(price2ret(prices))), datetick(‘x’)
xlabel(‘Date’), ylabel(‘Index Value’), title (‘Normalized Daily Index Closings’)
legend(countries, ‘Location’, ‘NorthWest’)
figure, plot(dates, 100 * yields)
datetick(‘x’), xlabel(‘Date’), ylabel(‘Annualized Yield (%)’)
title(‘Risk Free Rate (3-Month Euribor Continuously-Compounded)’)
Matlab code for estimating e-views
n = 200; k = 3; evec = randn(n,1);
xmat = [ones(n,1) randn(n,k)]; y = zeros(n,1); u = zeros(n,1);
beta = ones(k,1); beta(1,1) = 10.0; % constant term
for i=2:n; % generate a model with 1st order serial correlation
u(i,1) = 0.4*u(i-1,1) + evec(i,1);
y(i,1) = xmat(i,:)*beta + u(i,1);
end;
% truncate 1st 100 observations for startup
yt = y(101:n,1); xt = xmat(101:n,:);
n = n-100; % reset n to reflect truncation
Vnames = strvcat(‘y’,’cterm’,’x2′,’x3′);
result = ols(yt,xt); prt(result,Vnames); plt(result);
Econ 160 Term Paper Part 2
Econ 160 Term Paper Part 2
Your Name
Econ 160
Spring 2014
Introduction.
The capitalist class consists of individuals or households earning incomes of between $350,000 to $500,000 per year. They are often politicians, successful business owners, athletes, and executives. Such individuals are usually self-made because in the United States, 90% of the wealth is not inherited. Having a look at the income of households in the United States, it is observed that the capitalist class represent over 0.9% of income. Sometimes referred to as the super rich, people who belong to the capitalist class earn annual incomes of between $350,000 to $500,000, which would need several million dollars; in terms of assets to generate. Since it is already made clear that over 90% of wealth in America is not inherited, it brings in the question of how the men and women in the capitalist class accumulated the wealth to get to the point where they are at present. “How to Get Rich in a Capitalist Society”, provides a step by step guide for the new investors in revealing the secrets of people in the capitalist class. It also tries to reveal whatever they do in a different way that make them build wealth and the philosophies that enable them reach a point of becoming financially independent to the point of spending good time with their families and traveling all over the world.
The Frackers: “The Outrageous Inside Story of the New Billionaire Wildcatters by Gregory Zuckerman”.
This book talks about individuals who used an opportunity that looked impossible to rise above the rest, amass wealth and joined the capitalist class of the United States. They took the opportunity at a time when everybody thought it was crazy trying to extract natural gas and oil deep below the ground. The few reckless wildcatters used the opportunity to prove everybody wrong by risking their careers. It was in 2006 when everything looked grim for the United States since there was a deep decline in oil production and it was also hard to find natural gas. The war in Iraq also threatened the country’s tenuous relations with Middle East. Other challenges include the fact that China was fast industrializing and thereby posing serious competition for resources. Major oil companies were almost giving up on discovering any oil source in the U.S soil and an energy crisis was likely. It was at that time when a handful of men had the believe that everything was possible and thus used the opportunity to rise and belong to the capitalist social class.
Among the men who turned the face of America to the outside world include Aubrey McClendon, Mark Papa, Harold Hamm, George Mitchell, Tom Ward, and Charif Souki had the determination to tap gas and massive oil deposits that had been dismissed by Chevron, Exxon, and other giants as a waste of time. The wildcatters began the revolution by experimenting with a hydraulic fracturing by use of extremely dense shale. This was a process that is presently known as fracking. Within a few years, the wildcatters were able to solve the problem of oil in the United States, thereby triggering global environmental controversy. The wildcatters were a people who were not easy to understand in terms of their personalities, ambitions, foibles, and methods of operation. This made the Gregory Zuckerman, who is the Wall Street Journal reporter to get close to them learn the source of their motivation and how the managed to transform the their nation and the whole world.
The frackers were faced with serious opposition at some point such as the activists who argued that the new sources of energy were causing more harm to the waters and threatening the environment. They unleashed they the level of angry opposition they went through because of the revolution and how fracking come sometimes become dangerous. Due to the determination and the opportunity they explored to venture into an area that was less attractive to other individuals, they managed to transform the world in terms of environmental, geographical, and economic dimensions. They managed to accumulate wealth without inheriting from anybody and they are presently using their wealth and the power that come about due to the wealth to influence education, sports, entertainment, politics, and other various fields. This implies that they rose through the ranks to be among individuals belonging to the capitalist society in the United States.
Section 1
Section 2
Conclusion
Econ 102 Assignment #1
Institution
Instructor
Class
Student
Date
Econ 102 Assignment #1
Whenever analyzing societies, the common law, and economies the North has a special kind of definition of efficiency that to an extent coincides with maximization of the available total surplus given the existence of a free market. The society would always want to live the best lives possible by making good use of the available resources but under the guidance of common law which favors every member of the society in an equitable way. This equality could include enhancement of an equal expression of societal rights. According to North, efficiency may not be ensured by those skills that evolve from opportunities exposed by technological advancements but could be linked to a combination of elements of common law, economic resources, and social practices. According to the North, efficiency is defined as an increase in returns from a given fixed volume or aspects of inputs through extension of set of constraints that will lead to economic growth. This definition could be likened to the maximization of total surplus considering a free market that is as high as it can be.
Surplus is the quantity much more than it is required. Whenever referring to inputs, there should be a combination that would ensures that, none of the inputs is left as surplus or would be less than the rest of the input combinations. While efficiency would involve the maximization of total surplus in accordance with inputs used, efficiency would be enhanced by the method of production used especially on methods that completely utilizes the inputs. Efficiency is promoted by maintaining the same system as a way of creating specialization. Rather than having to change an institution to obtain a different system, efficiency would be obtained by changing mentality of agents especially economic argents. This issue of changing agents’ minds creates a common mind and hence a similar habits of thought.
North talks of ‘Models’ and the way they update with new information to develop further on their efficiency and on related capacities. In this case, models are from two perspectives that include the methods used in accordance with existing theories and from the perspective of the various participants in industries and markets. In the latter perspective, models are institutions and through the availability of information, any updates on the market and industrial changes would lead to a restructuring leading to a better way of action in both production and marketing. New information comes in with better technology that changes skills and production methods. The combination of the two could improve on total surplus utilization hence promoting efficiency.
There is an increasing concern on the issue of poorly performing society or economies persisting instead of being replaced with efficient ones. This is associated with input of resources as part of promoting efficiency. Allocation of resources is costly and the same applies to the provision of the adequate technology to initiate societal development changes. Since the poor societies and economies lack the required resources to call in for changes, it would be difficult to advance. The advanced economies have enough resources to fund projects that bring in development changes. These societies may do this by cheaply obtaining resources from the poor societies.
India happens to be one society that is today drawing world attention due to the fast growing economy and developmental changes within the country. This aspect could be related to the adjustments made by India in the midst of the years of 1980s. In the mid-1980s, India adopted certain macroeconomic policy adjustments. This happened alongside some liberalization of the existed industrial regimes and trade regimes all of which supported importation of foreign goods and technologies by getting rid of high restrictions on these imports. The country understood that by accepting technology from foreign economies especially in hi-tech, it would certainly reach a peak in technological advancements given that the necessary efforts were employed. India was a poor but through initiation of such regimes; it gradually developed to a point of being one of the fastest growing world economies today. The key issue in this case is that the country hardly allowed the rich economies to exploit its resources in exchange of less valuable financial aids as most poor countries do.
Instead of other country venturing India to benefit from its local resources, the country has been keen on ensuring that capital inflow is ultimate. This is one of the factors that have caused the country reach a point of competing globally with other top economies such as China, the US, Japan, as well as European nations. Capital inflow is done by encouraging part of its population to work in other nations but invest in India. The country is remarkable in its emerging car production industry by emerging forth. To get to this position the country had to cause some restructuring of its existing system rather than replacing the existing system with other systems. India’s issue of industrialization hardly started in the recent past but the country is well known through the existence of cottage industries. The country had to initiate change by incorporating external ideologies and technologies with the once existed technologies. It then had to invest heavily to develop its local industries by developing the existing industries and creating new industries where necessary. These issues enhance efficiency rather than causing the country to burdens in the industrial sector. The theory applied could be linked to the changes suggested by Veblen in terms of the right path to institutional changes. India took the right path and efficiency in the same would make the country maintain a great path in developmental changes.