The project arms at giving the students some experience of analyzing financial data.

Each student will:

Choose two stocks, one American and one Swedish, and download historical data for the last three years. This can be done from many places, e g yahoo.finance.
Plot the returns for the same period and describe what the process looks like. Also make a histogram for your returns. How does this histogram differ from e g a normal distribution.
Calculate a rolling backward directing 20-day daily volatility window (i e for each time t you use the days t-20 to t-1), noting that the volatility is the standard deviation of the daily returns. Plot as a timeseries. Describe what the time series for this volatility looks like. Scale the volatility to a yearly volatility and give the average number for the last three years.
Plot your returns above divided by your volatility estimates for each day. What does this process look like. What does its histogram look like?
Choose an option that is close to At-the-Money for each stock. This can also be found on yahoo.finance. Save the price of these options, and make sure that you have an estimate of the stocks volatility, from above, for the same day from which you to took the price.
Observe the difference between the theoretical Black-Scholes price, with your volatility estimate as an input, and the market price. What can this difference depend on?

Remarks:

The project is not compulsary and can be worked out in groups.
There is no report due, nor any extra credit from completing the project. However, the knowledge obtained from the project may be examined on the exam.
Some help and tips on how to carry out the project will be given in a lecture.
You may carry out the project using a program language of your choice, e g Matlab or Python.