Numerical Analysis, Books A La Carte Edition (3rd Edition)
3rd Edition
ISBN: 9780134697338
Author: Timothy Sauer
Publisher: PEARSON
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Chapter 0.3, Problem 4E
To determine
The largest integer k for which
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In this problem, we consider a Brownian motion (W+) t≥0. We consider a stock model (St)t>0
given (under the measure P) by
d.St 0.03 St dt + 0.2 St dwt,
with So 2. We assume that the interest rate is r = 0.06. The purpose of this problem is to
price an option on this stock (which we name cubic put). This option is European-type, with
maturity 3 months (i.e. T = 0.25 years), and payoff given by
F = (8-5)+
(a) Write the Stochastic Differential Equation satisfied by (St) under the risk-neutral measure
Q. (You don't need to prove it, simply give the answer.)
(b) Give the price of a regular European put on (St) with maturity 3 months and strike K = 2.
(c) Let X =
S. Find the Stochastic Differential Equation satisfied by the process (Xt)
under the measure Q.
(d) Find an explicit expression for X₁ = S3 under measure Q.
(e) Using the results above, find the price of the cubic put option mentioned above.
(f) Is the price in (e) the same as in question (b)? (Explain why.)
Problem 4. Margrabe formula and the Greeks (20 pts)
In the homework, we determined the Margrabe formula for the price of an option allowing you to
swap an x-stock for a y-stock at time T. For stocks with initial values xo, yo, common volatility
σ and correlation p, the formula was given by
Fo=yo (d+)-x0Þ(d_),
where
In (±²
Ꭲ
d+
õ√T
and
σ = σ√√√2(1 - p).
дго
(a) We want to determine a "Greek" for ỡ on the option: find a formula for
θα
(b) Is
дго
θα
positive or negative?
(c) We consider a situation in which the correlation p between the two stocks increases: what
can you say about the price Fo?
(d) Assume that yo< xo and p = 1. What is the price of the option?
The Course Name Real Analysis please Solve questions by Real Analysis
Chapter 0 Solutions
Numerical Analysis, Books A La Carte Edition (3rd Edition)
Ch. 0.1 - Rewrite the following polynomials in nested form...Ch. 0.1 - Rewrite the following polynomials in nested form...Ch. 0.1 - Evaluate P(x)=x64x4+2x2+1 at x=1/2 by considering...Ch. 0.1 - Evaluate the nested polynomial with base points...Ch. 0.1 - Evaluate the nested polynomial with base points...Ch. 0.1 - Explain how to evaluate the polynomial for a given...Ch. 0.1 - How many additions and multiplications are...Ch. 0.1 - Use the function nest to evaluate P(x)=1+x+...+x50...Ch. 0.1 - Use nest.m to evaluate P(x)=1x+x2x3+...+x98x99 at...Ch. 0.2 - Find the binary representation of the base 10...
Ch. 0.2 - Find the binary representation of the base 10...Ch. 0.2 - Convert the following base 10 numbers to binary....Ch. 0.2 - Convert the following base 10 numbers to binary....Ch. 0.2 - Find the first bits in the binary representation...Ch. 0.2 - Find the first 15 bits in the binary...Ch. 0.2 - Convert the following binary numbers to base :...Ch. 0.2 - Convert the following binary numbers to base...Ch. 0.3 - Convert the following base 10 numbers to binary...Ch. 0.3 - Convert the following base 10 numbers to binary...Ch. 0.3 - For which positive integers k can the number 5+2k...Ch. 0.3 - Find the largest integer k for which in double...Ch. 0.3 - Do the following sums by hand in IEEE double...Ch. 0.3 - Do the following sums by hand in IEEE double...Ch. 0.3 - Prob. 7ECh. 0.3 - Is 1/3+2/3 exactly equal to I in double precision...Ch. 0.3 - Prob. 9ECh. 0.3 - Prob. 10ECh. 0.3 - Does the associative law hold for IEEE computer...Ch. 0.3 - Prob. 12ECh. 0.3 - Prob. 13ECh. 0.3 - Prob. 14ECh. 0.3 - Do the following operations by hand in IEEE double...Ch. 0.3 - Prob. 16ECh. 0.4 - Identify for which values of x there is...Ch. 0.4 - Find the roots of the equation x2+3x814=0 with...Ch. 0.4 - Explain how to most accurately compute the two...Ch. 0.4 - Evaluate the quantity xx2+17x2 where x=910 ,...Ch. 0.4 - Evaluate the quantity 16x4x24x2 where x=812 ,...Ch. 0.4 - Prove formula (0.14).Ch. 0.4 - Calculate the expressions that follow in double...Ch. 0.4 - Prob. 2CPCh. 0.4 - Prob. 3CPCh. 0.4 - Prob. 4CPCh. 0.4 - Prob. 5CPCh. 0.5 - Prob. 1ECh. 0.5 - Find c satisfying the Mean Value Theorem for f(x)...Ch. 0.5 - Find c satisfying the Mean Value Theorem for...Ch. 0.5 - Find the Taylor polynomial of degree 2 about the...Ch. 0.5 - Find the Taylor polynomial of degree 5 about the...Ch. 0.5 - a. Find the Taylor polynomial of degree 4 for ...Ch. 0.5 - Carry out Exercise 6 (a)-(d) for f(x)=lnx .Ch. 0.5 - (a) Find the degree 5 Taylor polynomial centered...Ch. 0.5 - Prob. 9E
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