Problem 1: Plot annual historical volatility with 1-year implied volatility in a graph.
Problem 2: Referring to the graph in Q1, analyze the relationship between historical volatility and implied volatility. Hint: consider volatility cross-over; mean reversion, descriptive statistics etc.
Problem 3: From your analysis above, develop a delta neutral strategy for the period 10/03/2020 to 25/03/2020 to speculate/arbitrage on volatility. Explain how the strategy will work, and detail all transactions for undertaking the strategy. You can use as much capital as you like, but the cost of capital needs to be considered. Given that the strategy is theoretically risk free, you should not lose any money anyway! You are required to perform at least one re- balancing.
Problem 4: At the end of the period, close all the positions and evaluate the effectiveness of your strategy.
Attachment:- Historical volatility.rar