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Econometrics Modelling

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You have been given some information about a company's sales of a type of confectionary. The attached Excel spreadsheet contains weekly sales volumes, average selling prices and distribution (the percentage of retail stores stocking the product in that week) over a three year period for 4 Stock Keeping Units (SKUs) of this type of confectionary. These SKUs are essentially the same product but sold in different sizes, colours or packaging. The spreadsheet also contains information about the total market size by volume for this type of product and the average market price for this type of product.

1. Construct the best model that you believe best predicts future sales of these
products; and
2. Use charts to illustrate how well this model fits the historic data.

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Solution Preview

For a very efficient in building the best model while creating charts at the same time, I used Excel's built in scatter graph function where I added the trendline and displayed the regression equation.

Based on the econometrics model presented below, if you want to have a stronger relationship between your predictor variables and the sales volume, you ...

Solution Summary

Constract an econometrics model that can predict sales volume are provided.

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Developing econometric models for macroeconomic variables

Your firm has a well-respected economic research staff. The staff members have been successful in developing econometric models that can predict macroeconomic variables with a surprisingly degree of accuracy. The economic research staff would like to know which variables to monitor if options are ultimately used by the firm. Write a 2-3 page document to Mr. Herman explaining how the listed variables impact the prices of put options and what the associated theory is behind each relationship:

exercise price
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implied volatility
It is also important to recognize if put-call parity conditions are being met; if not, an arbitrage opportunity exists for the firm. In the following situation, identify whether or not an arbitrage opportunity exists if

call price = $1.15.
exercise price = $22.50.
time to expiration = 17 days.
put price = $0.55.
annual interest rate = 1.2%.
the stock pays zero dividends.

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