Several markets (Japan, Switzerland) introduced negative interest rates on their money market.In this problem, we will consider an annual interest rate r < 0. We consider a stock modeledby an N-period CRR model where each period is 1 year (At = 1) and the up and down factorsare u and d.(a) We consider an American put option with strike price K and expiration T. Prove that if<0, the optimal strategy is to wait until expiration T to exercise. (b) We consider an American call and an American put on the market described below, withstrike price K7 and expiration T = 2 years. We consider r = -25% per year. Whichof the two options is the most expensive at time t = 0.18800121246to2timetit₂Figure 2: Stock evolution for Problem 3(b).

Answered: Image /qna-images/answer/66324ac2-cf9a-465c-8eb9-35f7d1ef9edc.jpg

Answered: Several markets (Japan, Switzerland)…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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The Capital Asset Price Model (CAPM) is a financial model that attempts to predict the rate of return on a financial instrument, such as a common stock, in such a way that it is linearly related to the rate of return on the overal market. Specifically, RStockAiBo + BR Markets + e You are to study the relationship between the two variables and estimate the above model: R StockAi-rate of return on Stock A for month i, i = 1,2,---, 59. RMarket-market rate of return for month i, i=1,2,..., 59. B₁ represent's the stocks 'beta' value, or its systematic risk. It measure's the stocks volatility related to the market volatility. Bo represents the risk-free interest rate. The data in the .csv file contains the data on the rate of return of a large energy company which will be referred to as Acme Oil and Gas and the corresponding rate of return on the Toronto Composite Index (TSE) for 59 randomly selected months. Therefore Re, represents the monthly rate of return for a common share of Acme Oil…
Suppose you have inherited K100,000 from your father-in-law that can be invested in a combination of only two stock portfolios, with the maximum investment allowed in either portfolio set at K75,000 . The first portfolio has an average rate of return of 10%, whereas the second has 20%. In terms of risk factors associated with these portfolios, the first has a risk rating of 4 (on a scale 0 to 10), and the second has 9. Since you wish to maximize your return, you will not accept an average rate of return below 12% or risk factor above 6. Formulate the linear programming model for the problem. How much should you invest in each portfolio? Solve the problem by simplex method.
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Q-1 A manufacturer of microcomputers produces three different models. The following table summarizes whole sale process material cost per unit, and labor cost per unit. The annual fixed cost is Rs. 10 Million. But manufacturer decided that fifty percent more annual costs would be include in its sanarios and the fixed cost 4400, 8000 and 3500 are also included each of three models. Product Туре 1 Туре 2 Туре 3 Whole Sale Price/ Unit Rs. 950 1000 1500 Material Cost/Unit 200 300 230 Labor Cost/Unit 175 150 450 Required: i) Determine a joint total revenue function for the sales of the three different microcomputer models. ii) iii) iv) Determine a total cost function for manufacturing the three models. Determine the profit function for sale of the three models. What is annual profit, if the firm sells 60,000, 13000 and units of three models? 100400 v) Also graphically present all functions.
According to the Taylor rule, if the target rate of inflation for the Fed is 2 percent and inflation rises to 3 percent at full unemployment, then the Fed should Multiple Choice raise the real federal funds rate by one percentage point. lower the real federal funds rate by one percentage point. raise their targeted interest rate by half of a percentage point. lower their targeted interest rate by half of a percentage point.
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A retired couple wishes to invest $750,000, diversifying the investment in three areas: a high-risk stock that has an expected annual rate of return (or interest) of 12%, a low-risk stock that has an expected annual return of 8%, and government-issued bonds that pay annual interest of 4% and involve no risk. To protect the value of the investment, the couple wishes to place at least twice as much in the low-risk stock as in the high-risk stock and use the remainder to buy bonds. How should the money be invested to maximize the expected annual return?
The dove population on Honeydoom farms has become slightly invasive, doves have far out-competed the endangered Emerald Sparrows in the area – causing their near. The local animal control board would like to begin culling the dove population in order to ensure the survival of the Emerald Sparrow, but the control board will cease any culling when the population of sparrows and doves are equivalent, they will begin culling in one year. You believe that the current trends in population suggest that an equal dove to sparrow ratio can be expected in a fairly short period. You are asked for proof. Population growth can be modeled using the equation n(t)= n0e^rt where n0 is the initial population, is the rate of growth, and t is time in decades. Let us suppose we have a population of sparrows ns(t), with an initial population of ns0 and a population of doves nd(t), initial population of nd0, It has been observed that the doves decrease at a rate of 200 per year and the sparrows increase at…

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