Finite Mathematics
7th Edition
ISBN: 9781337280426
Author: Stefan Waner, Steven Costenoble
Publisher: Cengage Learning
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Chapter 0.2, Problem 26E
To determine
To calculate: The simplified form of expression
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We consider an N-period CRR model where each period is 1 year (At = 1), the up factor is
u = 0.1, the down factor is d = e−0.3 and r = 0. We remind you that in the CRR model, the
stock price at time tn is modeled (under P) by
Sta
=
So exp (μtn + σ√AtZn),
where (Zn) is a simple symmetric random walk.
(a) Find the parameters μ and σ for the CRR model described above.
(b) Find P
Ste
So
55/50
€ > 1).
StN
(c) Find lim P
804-N
(d) Determine q. (You can use e- 1 x.)
Ste
(e) Find Q
So
(f) Find lim Q
004-N
StN
So
In this problem, we consider a 3-period stock market model with evolution given in Fig. 1 below.
Each period corresponds to one year. The interest rate is r = 0%.
16
22
28
12
16
12
8
4
2
time
Figure 1: Stock evolution for Problem 1.
(a) A colleague notices that in the model above, a movement up-down leads to the same value
as a movement down-up. He concludes that the model is a CRR model. Is your colleague
correct? (Explain your answer.)
(b) We consider a European put with strike price K = 10 and expiration T = 3 years. Find
the price of this option at time 0. Provide the replicating portfolio for the first period.
(c) In addition to the call above, we also consider a European call with strike price K = 10
and expiration T = 3 years. Which one has the highest price? (It is not necessary to
provide the price of the call.)
(d) We now assume a yearly interest rate r = 25%. We consider a Bermudan put option with
strike price K = 10. It works like a standard put, but you can exercise it…
In this problem, we consider a 2-period stock market model with evolution given in Fig. 1 below.
Each period corresponds to one year (At = 1). The yearly interest rate is r = 1/3 = 33%. This
model is a CRR model.
25
15
9
10
6
4
time
Figure 1: Stock evolution for Problem 1.
(a) Find the values of up and down factors u and d, and the risk-neutral probability q.
(b) We consider a European put with strike price K
the price of this option at time 0.
==
16 and expiration T = 2 years. Find
(c) Provide the number of shares of stock that the replicating portfolio contains at each pos-
sible position.
(d) You find this option available on the market for $2. What do you do? (Short answer.)
(e) We consider an American put with strike price K
= 16 and expiration T
=
2 years. Find
the price of this option at time 0 and describe the optimal exercising strategy.
(f) We consider an American call with strike price K ○ = 16 and expiration T = 2 years. Find
the price of this option at time 0 and describe…
Chapter 0 Solutions
Finite Mathematics
Ch. 0.1 - Prob. 1ECh. 0.1 - Prob. 2ECh. 0.1 - Prob. 3ECh. 0.1 - Prob. 4ECh. 0.1 - Prob. 5ECh. 0.1 - Prob. 6ECh. 0.1 - Prob. 7ECh. 0.1 - Prob. 8ECh. 0.1 - Prob. 9ECh. 0.1 - Prob. 10E
Ch. 0.1 - Prob. 11ECh. 0.1 - Prob. 12ECh. 0.1 - Prob. 13ECh. 0.1 - Calculate each expression in Exercises 124, giving...Ch. 0.1 - Prob. 15ECh. 0.1 - Prob. 16ECh. 0.1 - Calculate each expression in Exercises 124, giving...Ch. 0.1 - Calculate each expression in Exercises 124, giving...Ch. 0.1 - Prob. 19ECh. 0.1 - Prob. 20ECh. 0.1 - Prob. 21ECh. 0.1 - Prob. 22ECh. 0.1 - Prob. 23ECh. 0.1 - Calculate each expression in Exercises 124, giving...Ch. 0.1 - Prob. 25ECh. 0.1 - Prob. 26ECh. 0.1 - Prob. 27ECh. 0.1 - Prob. 28ECh. 0.1 - Prob. 29ECh. 0.1 - Prob. 30ECh. 0.1 - Prob. 31ECh. 0.1 - Prob. 32ECh. 0.1 - Prob. 33ECh. 0.1 - Prob. 34ECh. 0.1 - Convert each expression in Exercises 25-50 into...Ch. 0.1 - Convert each expression in Exercises 25-50 into...Ch. 0.1 - Convert each expression in Exercises 25-50 into...Ch. 0.1 - Prob. 38ECh. 0.1 - Prob. 39ECh. 0.1 - Prob. 40ECh. 0.1 - Prob. 41ECh. 0.1 - Prob. 42ECh. 0.1 - Prob. 43ECh. 0.1 - Prob. 44ECh. 0.1 - Prob. 45ECh. 0.1 - Prob. 46ECh. 0.1 - Prob. 47ECh. 0.1 - Prob. 48ECh. 0.1 - Prob. 49ECh. 0.1 - Prob. 50ECh. 0.2 - Prob. 1ECh. 0.2 - Prob. 2ECh. 0.2 - Prob. 3ECh. 0.2 - Prob. 4ECh. 0.2 - Prob. 5ECh. 0.2 - Prob. 6ECh. 0.2 - Prob. 7ECh. 0.2 - Prob. 8ECh. 0.2 - Prob. 9ECh. 0.2 - Prob. 10ECh. 0.2 - Prob. 11ECh. 0.2 - Prob. 12ECh. 0.2 - Prob. 13ECh. 0.2 - Prob. 14ECh. 0.2 - Prob. 15ECh. 0.2 - Prob. 16ECh. 0.2 - Prob. 17ECh. 0.2 - Prob. 18ECh. 0.2 - Prob. 19ECh. 0.2 - Prob. 20ECh. 0.2 - Prob. 21ECh. 0.2 - Prob. 22ECh. 0.2 - Prob. 23ECh. 0.2 - Prob. 24ECh. 0.2 - Prob. 25ECh. 0.2 - Prob. 26ECh. 0.2 - Prob. 27ECh. 0.2 - Prob. 28ECh. 0.2 - Prob. 29ECh. 0.2 - Prob. 30ECh. 0.2 - Prob. 31ECh. 0.2 - Prob. 32ECh. 0.2 - Prob. 33ECh. 0.2 - Prob. 34ECh. 0.2 - Convert the expressions in Exercises 31-36 to...Ch. 0.2 - Prob. 36ECh. 0.2 - Prob. 37ECh. 0.2 - Prob. 38ECh. 0.2 - Prob. 39ECh. 0.2 - Prob. 40ECh. 0.2 - Prob. 41ECh. 0.2 - Prob. 42ECh. 0.2 - Prob. 43ECh. 0.2 - Prob. 44ECh. 0.2 - Prob. 45ECh. 0.2 - Prob. 46ECh. 0.2 - Prob. 47ECh. 0.2 - Evaluate expressions in Exercises 3756, rounding...Ch. 0.2 - Prob. 49ECh. 0.2 - Prob. 50ECh. 0.2 - Prob. 51ECh. 0.2 - Prob. 52ECh. 0.2 - Prob. 53ECh. 0.2 - Prob. 54ECh. 0.2 - Prob. 55ECh. 0.2 - Prob. 56ECh. 0.2 - Prob. 57ECh. 0.2 - Prob. 58ECh. 0.2 - Prob. 59ECh. 0.2 - Prob. 60ECh. 0.2 - Prob. 61ECh. 0.2 - Prob. 62ECh. 0.2 - Prob. 63ECh. 0.2 - Prob. 64ECh. 0.2 - Prob. 65ECh. 0.2 - Prob. 66ECh. 0.2 - Prob. 67ECh. 0.2 - Prob. 68ECh. 0.2 - Prob. 69ECh. 0.2 - Prob. 70ECh. 0.2 - Prob. 71ECh. 0.2 - Prob. 72ECh. 0.2 - Prob. 73ECh. 0.2 - Prob. 74ECh. 0.2 - Prob. 75ECh. 0.2 - Prob. 76ECh. 0.2 - Prob. 77ECh. 0.2 - Prob. 78ECh. 0.2 - Prob. 79ECh. 0.2 - Prob. 80ECh. 0.2 - Prob. 81ECh. 0.2 - Prob. 82ECh. 0.2 - Prob. 83ECh. 0.2 - Prob. 84ECh. 0.2 - Prob. 85ECh. 0.2 - Prob. 86ECh. 0.2 - Prob. 87ECh. 0.2 - Prob. 88ECh. 0.2 - Prob. 89ECh. 0.2 - Prob. 90ECh. 0.2 - Prob. 91ECh. 0.2 - Prob. 92ECh. 0.2 - Prob. 93ECh. 0.2 - Prob. 94ECh. 0.2 - Prob. 95ECh. 0.2 - Prob. 96ECh. 0.2 - Prob. 97ECh. 0.2 - Prob. 98ECh. 0.2 - Prob. 99ECh. 0.2 - Prob. 100ECh. 0.2 - Prob. 101ECh. 0.2 - Prob. 102ECh. 0.2 - Prob. 103ECh. 0.2 - Prob. 104ECh. 0.2 - Prob. 105ECh. 0.2 - Prob. 106ECh. 0.2 - Prob. 107ECh. 0.2 - Prob. 108ECh. 0.2 - Prob. 109ECh. 0.2 - Prob. 110ECh. 0.2 - Prob. 111ECh. 0.2 - Prob. 112ECh. 0.2 - Prob. 113ECh. 0.2 - Prob. 114ECh. 0.2 - Prob. 115ECh. 0.2 - Prob. 116ECh. 0.2 - Prob. 117ECh. 0.2 - Prob. 118ECh. 0.2 - Prob. 119ECh. 0.2 - Prob. 120ECh. 0.3 - Expand each expression in Exercises 122. x(4x+6)Ch. 0.3 - Prob. 2ECh. 0.3 - Prob. 3ECh. 0.3 - Prob. 4ECh. 0.3 - Prob. 5ECh. 0.3 - Prob. 6ECh. 0.3 - Prob. 7ECh. 0.3 - Prob. 8ECh. 0.3 - Prob. 9ECh. 0.3 - Prob. 10ECh. 0.3 - Prob. 11ECh. 0.3 - Prob. 12ECh. 0.3 - Prob. 13ECh. 0.3 - Prob. 14ECh. 0.3 - Prob. 15ECh. 0.3 - Prob. 16ECh. 0.3 - Expand each expression in Exercises 122....Ch. 0.3 - Prob. 18ECh. 0.3 - Prob. 19ECh. 0.3 - Prob. 20ECh. 0.3 - Prob. 21ECh. 0.3 - Prob. 22ECh. 0.3 - Prob. 23ECh. 0.3 - Prob. 24ECh. 0.3 - In Exercises 2330, factor each expression and...Ch. 0.3 - Prob. 26ECh. 0.3 - Prob. 27ECh. 0.3 - Prob. 28ECh. 0.3 - Prob. 29ECh. 0.3 - In Exercises 2330, factor each expression and...Ch. 0.3 - Prob. 31ECh. 0.3 - Prob. 32ECh. 0.3 - Prob. 33ECh. 0.3 - Prob. 34ECh. 0.3 - Prob. 35ECh. 0.3 - In Exercises 3148, (a) factor the given...Ch. 0.3 - Prob. 37ECh. 0.3 - Prob. 38ECh. 0.3 - Prob. 39ECh. 0.3 - In Exercises 3148, (a) factor the given...Ch. 0.3 - Prob. 41ECh. 0.3 - Prob. 42ECh. 0.3 - Prob. 43ECh. 0.3 - Prob. 44ECh. 0.3 - Prob. 45ECh. 0.3 - Prob. 46ECh. 0.3 - Prob. 47ECh. 0.3 - Prob. 48ECh. 0.4 - Prob. 1ECh. 0.4 - Prob. 2ECh. 0.4 - Prob. 3ECh. 0.4 - Prob. 4ECh. 0.4 - Prob. 5ECh. 0.4 - Prob. 6ECh. 0.4 - Prob. 7ECh. 0.4 - Prob. 8ECh. 0.4 - Prob. 9ECh. 0.4 - Prob. 10ECh. 0.4 - Prob. 11ECh. 0.4 - Rewrite each expression in Exercises 116 as a...Ch. 0.4 - Prob. 13ECh. 0.4 - Prob. 14ECh. 0.4 - Prob. 15ECh. 0.4 - Prob. 16ECh. 0.5 - Solve the equations in Exercises 112 for x...Ch. 0.5 - Prob. 2ECh. 0.5 - Prob. 3ECh. 0.5 - Prob. 4ECh. 0.5 - Prob. 5ECh. 0.5 - Prob. 6ECh. 0.5 - Prob. 7ECh. 0.5 - Prob. 8ECh. 0.5 - Prob. 9ECh. 0.5 - Prob. 10ECh. 0.5 - Prob. 11ECh. 0.5 - Solve the equations in Exercises 112 for x...Ch. 0.5 - Prob. 13ECh. 0.5 - Prob. 14ECh. 0.5 - Prob. 15ECh. 0.5 - Prob. 16ECh. 0.5 - Prob. 17ECh. 0.5 - Prob. 18ECh. 0.5 - Prob. 19ECh. 0.5 - Prob. 20ECh. 0.5 - Prob. 21ECh. 0.5 - Prob. 22ECh. 0.5 - Prob. 23ECh. 0.5 - Prob. 24ECh. 0.5 - Prob. 25ECh. 0.5 - Prob. 26ECh. 0.5 - Prob. 27ECh. 0.5 - Prob. 28ECh. 0.5 - Prob. 29ECh. 0.5 - Prob. 30ECh. 0.5 - Prob. 31ECh. 0.5 - Prob. 32ECh. 0.5 - Prob. 33ECh. 0.5 - Prob. 34ECh. 0.5 - Prob. 35ECh. 0.5 - Prob. 36ECh. 0.5 - Find all possible real solutions of each equation...Ch. 0.5 - Prob. 38ECh. 0.5 - Prob. 39ECh. 0.5 - Find all possible real solutions of each equation...Ch. 0.5 - Prob. 41ECh. 0.5 - Prob. 42ECh. 0.5 - Prob. 43ECh. 0.5 - Prob. 44ECh. 0.6 - Prob. 1ECh. 0.6 - Prob. 2ECh. 0.6 - Prob. 3ECh. 0.6 - Prob. 4ECh. 0.6 - Prob. 5ECh. 0.6 - Prob. 6ECh. 0.6 - Prob. 7ECh. 0.6 - Prob. 8ECh. 0.6 - Prob. 9ECh. 0.6 - Prob. 10ECh. 0.6 - Solve the equations in Exercises 126....Ch. 0.6 - Prob. 12ECh. 0.6 - Prob. 13ECh. 0.6 - Prob. 14ECh. 0.6 - Prob. 15ECh. 0.6 - Prob. 16ECh. 0.6 - Prob. 17ECh. 0.6 - Prob. 18ECh. 0.6 - Prob. 19ECh. 0.6 - Prob. 20ECh. 0.6 - Prob. 21ECh. 0.6 - Prob. 22ECh. 0.6 - Prob. 23ECh. 0.6 - Prob. 24ECh. 0.6 - Prob. 25ECh. 0.6 - Prob. 26ECh. 0.7 - Referring to the following figure, determine the...Ch. 0.7 - Prob. 2ECh. 0.7 - Prob. 3ECh. 0.7 - Prob. 4ECh. 0.7 - Prob. 5ECh. 0.7 - Prob. 6ECh. 0.7 - Prob. 7ECh. 0.7 - Prob. 8ECh. 0.7 - Prob. 9ECh. 0.7 - Prob. 10ECh. 0.7 - Prob. 11ECh. 0.7 - Prob. 12ECh. 0.7 - Prob. 13ECh. 0.7 - Prob. 14ECh. 0.7 - Prob. 15ECh. 0.7 - Prob. 16ECh. 0.7 - Prob. 17ECh. 0.7 - Find the value of k such that (k,k) is equidistant...Ch. 0.7 - Describe the set of points (x,y) such that...Ch. 0.7 - Prob. 20ECh. 0.8 - In Exercises 14, complete the given tables....Ch. 0.8 - In Exercises 14, complete the given tables....Ch. 0.8 - In Exercises 14, complete the given tables....Ch. 0.8 - In Exercises 14, complete the given tables....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - Prob. 14ECh. 0.8 - Prob. 15ECh. 0.8 - In Exercises 516, evaluate the given quantity....Ch. 0.8 - In Exercises 1728, use the logarithm identities to...Ch. 0.8 - In Exercises 1728, use the logarithm identities to...Ch. 0.8 - In Exercises 1728, use the logarithm identities to...Ch. 0.8 - In Exercises 1728, use the logarithm identities to...Ch. 0.8 - In Exercises 1728, use the logarithm identities to...Ch. 0.8 - In Exercises 1728, use the logarithm identities to...Ch. 0.8 - Prob. 23ECh. 0.8 - Prob. 24ECh. 0.8 - Prob. 25ECh. 0.8 - Prob. 26ECh. 0.8 - Prob. 27ECh. 0.8 - Prob. 28ECh. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - Prob. 30ECh. 0.8 - Prob. 31ECh. 0.8 - Prob. 32ECh. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - Prob. 34ECh. 0.8 - Prob. 35ECh. 0.8 - Prob. 36ECh. 0.8 - Prob. 37ECh. 0.8 - Prob. 38ECh. 0.8 - Prob. 39ECh. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - Let a=log2,b=log3, and c=log7. In Exercises 2946,...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...Ch. 0.8 - In Exercises 4756, solve the given equation for...
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