6. o = a) A stock price is modelled using a lognormal model with drift u = 0.1 and volatility 0.3. i) Please provide an expression for the stock price and state at least three characteristics of the returns according to this model. [4 marks] ii) Please explain how would you empirically test independence of returns. Please provide two equivalent tests. [5 marks] b) As a result of the COVID-19 crisis there was a global move to home working, and increased reliance on video conference facilities such as those offered by Zoom Video Communications. At the same time there was a sudden increase in trading volumes for Zoom Technology shares. The latter is a company that sells electronic technology for mobile phones. It was soon established that this was a clear case of mistaken identity. Please propose and explain a test for establishing whether the markets are efficient in this case. [4 marks] [Total:13 marks] 6. o = a) A stock price is modelled using a lognormal model with drift u = 0.1 and volatility 0.3. i) Please provide an expression for the stock price and state at least three characteristics of the returns according to this model. [4 marks] ii) Please explain how would you empirically test independence of returns. Please provide two equivalent tests. [5 marks] b) As a result of the COVID-19 crisis there was a global move to home working, and increased reliance on video conference facilities such as those offered by Zoom Video Communications. At the same time there was a sudden increase in trading volumes for Zoom Technology shares. The latter is a company that sells electronic technology for mobile phones. It was soon established that this was a clear case of mistaken identity. Please propose and explain a test for establishing whether the markets are efficient in this case. [4 marks] [Total:13 marks]