Homework Assignments

Number Due Assignment
1 Wednesday, January 23 Use the ideas from the notes on Risk neutral probabilities to infer the probability of default of a bond issuer.
  • Choose a company that is under stress in the current market (but not yet in bankruptcy!), and find its ticker symbol.
  • You can find bond prices at the Yahoo! Finance Bond Center.
  • You can also find bond prices through the NCSU Libraries:
    • Under Search the Collection, click on Databases.
    • Click the W box, then Wharton Research Data Services.
    • On the WRDS site, click on TRACE, then Bond Trades.
    • Set up the data request and submit it.
    Each transaction shows the CUSIP for the bond that was traded, but no details such as maturity date or coupon. Just do a web search for CUSIP and the actual CUSIP. You should get a hit at the FINRA site.
  • You could use the Treasury Constant Maturity rates to find the risk-free rate for the corresponding maturity (an exact match is not necessary).
  • For recovery rate, you could use the 40% quoted in a Federal Reserve paper.
2 Wednesday, February 6
  • Find a daily time series related to the financial markets.
  • Investigate its conditional mean structure using AR models.
  • Investigate its conditional variance structure using ARCH and GARCH models.
  • Reduce the daily series to one observation per week and repeat the analyses.
  • Reduce the daily series to one observation per month and repeat the analyses.
3 Wednesday, February 20
  • Find at least 5 time series related to the financial markets, that you expect to vary jointly. Examples include
    • exchange rates from the US$ to several other currencies,
    • various kinds of interest rates, prices of various stocks,
    • stock price indices for various countries,
    • prices (or futures) of various commodities.
  • Perform principal components analysis of the data, after scaling if required.
  • Examine the loadings of the first component, and discuss its interpretation.
  • Graph the time series of scores for the first component, and discuss its interpretation and its relation to the graphs of the original series
  • Repeat for the second and subsequent components, until you find one for which you can offer no interpretation.
4 Wednesday, March 13
  • Prepare a brief (one paragraph) statement of the topic for your paper and presentation.
    • The format is flexible, ranging from a survey of an area to a more focused study of a particular problem. The topic could be one that we have covered in the course, or a related area of either finance or statistics.
    • The study could be focused on a real-world example of a particular kind of data or financial structure; alternatively, it could include simulations of data from some model relevant to financial markets. A survey paper does not necessarily need to include any specific data at all.
Valid CSS!
Valid HTML5