• You are forming a portfolio containing 3 stocks, to diversify your portfolio, you decide to choose these stocks from 3 different sectors: one from Energy sector, one from the Financials sector, and one from the Consumer Discretionary sector.
  • Calculate the average monthly returns and standard deviations for each stock, and report their Sharpe ratios, using the latest 5-year monthly price information.
  • Create a sample variance/covariance matrix for your portfolio assets. Find weights for minimum variance portfolio.
  • Graph the efficient frontier for your portfolio.
  • Find the weights for the market portfolio. Report its return and standard deviation, too. Add the CML to your efficient frontier chart.
  • Choose one stock from your portfolio, you are nervous about this stock's future price movement, so you decide to implement a protective put strategy. Find an appropriate put option currently available for this stock and clearly label the source. (Yahoo Finance has a list of options for each stock). Graph the payoff pattern for the stock, the put option, and the protective put strategy.
  • Use the Black-Scholes-Morton model to price this put option you are using in the protective put strategy. How does your result compare with the current market price for this put option?
  • Calculate the delta for this put option. Graph put delta as a function of stock price. Graph put delta as a function of time to maturity and moneyness.