You are an investor and investing in four stock options (SOA, SOB, SOC, and SOD) for...

 

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You are an investor and investing in four stock options (SOA, SOB, SOC, and SOD) for a single day. The purchase prices and the historical price standard deviations are as follows: SOA: Purchase Price $18.75, Standard Deviation = 1.85 SOB: Purchase Price = $22.80, Standard Deviation = 1.65 SOC: Purchase Price = $24.90, Standard Deviation = 1.15 SOD: Purchase Price = $25.40, Standard Deviation = 2.24 You have purchased 300 shares of SOA, 250 shares of SOB and SOC, and 150 shares of SOD at the prices shown above, and you will sell them at the end of the same day. By the end of the day the stock option prices will change in accordance with normal distribution and the standard deviations shown above. You will realize a total profit(loss) for your one-day trading effort. PROBLEM a) Create a Monte Carlo simulation to estimate your total 1-day profit(loss) using 10,000 simulations? Show expected profit(loss) per stock option and the total profit(loss) for the day. b) What is the average profit(loss) using 5 successive simulations? c) Based on the profit(loss) observed above, would you invest in these stock options? Why? Create an Excel spreadsheet for the above analysis and submit the spreadsheet with all steps shown and all the data properly labeled. HINT Create 10,000 simulations for all the four stocks, compute the profit(loss) for each, obtain 5 different runs using the F9-key (fn+F9 in Mac), and record the total profit(loss) in each run. Average the profit(loss) of the 5 runs to determine the answer. You are an investor and investing in four stock options (SOA, SOB, SOC, and SOD) for a single day. The purchase prices and the historical price standard deviations are as follows: SOA: Purchase Price $18.75, Standard Deviation = 1.85 SOB: Purchase Price = $22.80, Standard Deviation = 1.65 SOC: Purchase Price = $24.90, Standard Deviation = 1.15 SOD: Purchase Price = $25.40, Standard Deviation = 2.24 You have purchased 300 shares of SOA, 250 shares of SOB and SOC, and 150 shares of SOD at the prices shown above, and you will sell them at the end of the same day. By the end of the day the stock option prices will change in accordance with normal distribution and the standard deviations shown above. You will realize a total profit(loss) for your one-day trading effort. PROBLEM a) Create a Monte Carlo simulation to estimate your total 1-day profit(loss) using 10,000 simulations? Show expected profit(loss) per stock option and the total profit(loss) for the day. b) What is the average profit(loss) using 5 successive simulations? c) Based on the profit(loss) observed above, would you invest in these stock options? Why? Create an Excel spreadsheet for the above analysis and submit the spreadsheet with all steps shown and all the data properly labeled. HINT Create 10,000 simulations for all the four stocks, compute the profit(loss) for each, obtain 5 different runs using the F9-key (fn+F9 in Mac), and record the total profit(loss) in each run. Average the profit(loss) of the 5 runs to determine the answer.

Answer rating: 100% (QA)

1 Monte Carlo Simulation For each stock option SOA SOB SOC SOD you need to simulate the pric... View the full answer