3. 1. For the Nasdaq stock index futures traded on the CME, make a chart of the futures price as a function of maturity. Collect appropriate (or assume) interest rate data and determine the estimated dividend yield for the NASDAQ. How does it compare to the S&P and why do you think one might be higher or lower? 2. An investor wants to sell her diversified stock portfolio in December, but this would create a large taxable profit for her. She would like to be able to defer the taxes one year. How can she accomplish this? Why are financial futures priced differently from nonfinancial futures? Can you provide an example of basis risk as it applies to hedging a portfolio of stocks with equity index futures? 5. If a farmer sells his corn forward on the harvest date, what risks have increased and what risks have decreased, compared to not selling forward? Use monthly data to compute the volatility and correlation between the NASDAQ and S&P returns over the last 1 year, over the last 2 years, and over the last 5 years. Show your results on a graph. Calculate the historical volatility of the NASDAQ index over the last year by computing the standard deviation of historical returns and multiplying by sqrt(252). (The number of trading days in a year is typically taken to be 252.) Use your volatility estimate to simulate the risk each month in a 12 month futures position. What is the cumulative maximum loss of a long or a short position in each of the months, assuming the position is held until maturity?' 6. 3. 1. For the Nasdaq stock index futures traded on the CME, make a chart of the futures price as a function of maturity. Collect appropriate (or assume) interest rate data and determine the estimated dividend yield for the NASDAQ. How does it compare to the S&P and why do you think one might be higher or lower? 2. An investor wants to sell her diversified stock portfolio in December, but this would create a large taxable profit for her. She would like to be able to defer the taxes one year. How can she accomplish this? Why are financial futures priced differently from nonfinancial futures? Can you provide an example of basis risk as it applies to hedging a portfolio of stocks with equity index futures? 5. If a farmer sells his corn forward on the harvest date, what risks have increased and what risks have decreased, compared to not selling forward? Use monthly data to compute the volatility and correlation between the NASDAQ and S&P returns over the last 1 year, over the last 2 years, and over the last 5 years. Show your results on a graph. Calculate the historical volatility of the NASDAQ index over the last year by computing the standard deviation of historical returns and multiplying by sqrt(252). (The number of trading days in a year is typically taken to be 252.) Use your volatility estimate to simulate the risk each month in a 12 month futures position. What is the cumulative maximum loss of a long or a short position in each of the months, assuming the position is held until maturity?' 6
