comparing two assets

[Jack Fantasy]

Hi, guys

I have a difficult problem about comparing two assets. I don’t have any good idea about it.



1. There are two artificial assets A, B, something like below:
No. days Daily Return A Daily Return B Insurance A Insurance B
......
15276 0.038117 -0.00828 0.513463 0.302181
15277 -0.00153 0.017663 0.485326 0.307153
15278 -0.01382 0.006506 0.52759 0.312867
15279 -0.02392 0.022383 0.573459 0.317434
..….

1. The daily returns of two assets, A and B. A has a much longer history.

3. The market's costs of insurance for the two assets, i.e. protection against prices going up or down in the next 20 days.

The question is to decide which asset's cost of insurance is cheaper than the other, at any point in time.
I find information provided is limited. The question about which asset’s cost of insurance is cheaper is very absurd to me.

Do you have any idea to approach this problem? What do you guys think about this question?

Thank you in advance.

Jack

 

[mfegrad]

this could be too simplistic of an answer, but it's probably asking you to calculate a vol and figure out what the insurance cost per unit vol is. you have to decide what your window is (all time for each asset, last six months, etc.).

 

[Jack Fantasy]

this could be too simplistic of an answer, but it's probably asking you to calculate a vol and figure out what the insurance cost per unit vol is. you have to decide what your window is (all time for each asset, last six months, etc.).

What do you mean by "volume" here ? We don't have market prices in this question. Could you elaborate on this ? I thought the question asks the cheaper asset in sense of volatility (or implied volatility), but I am not very sure how to model volatility properly given limited information (e.g. market price, strike price is unknown).

Thank you

 

[mfegrad]

vol = volatility. should be able to get a vol from the returns, no?

and you're right. i thought the daily return was the price. should have slept in more this am

 

[Jack Fantasy]

vol = volatility. should be able to get a vol from the returns, no?

and you're right. i thought the daily return was the price. should have slept in more this am

I think I can calculate historical volatility from the daily return. Then, the insurance cost per unit vol = insurance cost / volatility. My question is can we model the relationship between volatility and the insurance cost (or the option price) like this? Do we miss something important?

Thank you