Group Homework 5: Pandas I Due by 10/24/2023 11 pm 50 pts

Please read the lecture notes and practice the in-class examples before you do the homework. One submission per group includes programming code and output.

Write the scripts in Python code through Google co-lab, execute each step, keep the output box, save the code in a pdf file, and submit this file together with your Co-lab notebook share link on Canvas (in the “Print” setting, choose “Default” for “Margins”&select the “Headers and Footers” option, and you will find the link at the bottom of your pdf file). In the Python file, write down your group number and members using comment (#) in the first line (without this information, your group will lose one point).

Please use comment # (NOT the text block!) to tell the question number and explain your design if necessary. Also, you are welcome to submit more than one solution.

Please submit your answers on Canvas by the deadline. Late submissions will not be accepted.

I. Review the in-class example for two correlated stocks of “UAL” and “DAL”. Find three correlated stocks your group members are interested in and prepare a Python programming code to simulate these three stocks’ price paths. (40 points)

Step 1: Extract the historical data from Yahoo!Finance. You can decide the period of history you want to use to derive the inputs for your simulation in Step 3.

Step 2: Plot the historical “close price” paths for these three stocks with the labels of their stock names. The legend should be located at the “upper right”. “fontsize” =12

Step 3: Simulate the 6-month price paths of these three stocks.

Use the data from Step 1 to derive the mean, volatility, and covariance matrix. Print the

volatility and covariance matrix.

Set the seed to be your group number. S0 should be the last close prices of the data from Step 1.

dt should be the same unit as in-class example.

Risk-free rate: you can use the 3-month LIBOR rate around the starting time of your simulation. (Please include the source web link for the rate in your code as a reference).

II. Read the attached article and briefly summarize the procedure for tick and quote tests (limited to one page, for example, bullet points). We will work on this industry practice in our following lecture. (10 points)

a. Quote test/rule

b. Tick test/rule

Please include this part in a text box in your co-lab file.