Introduction to Probability and Statistics
Introduction to Probability and Statistics
14th Edition
ISBN: 9781133103752
Author: Mendenhall, William
Publisher: Cengage Learning
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Chapter 1, Problem 1.53SE

(a)

To determine

To describe the shape of the two distributions given in the question and also that are there any outliers.

(b)

To determine

To verify that the stem and leaf resemble the relative frequency histogram in question 1.51 and 1.52.

(c)

To determine

To explain why the distribution of popular vote of state is skewed while the percentage votes by state is mounded shape.

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Problem 3. Pricing a multi-stock option the Margrabe formula The purpose of this problem is to price a swap option in a 2-stock model, similarly as what we did in the example in the lectures. We consider a two-dimensional Brownian motion given by W₁ = (W(¹), W(2)) on a probability space (Q, F,P). Two stock prices are modeled by the following equations: dX = dY₁ = X₁ (rdt+ rdt+0₁dW!) (²)), Y₁ (rdt+dW+0zdW!"), with Xo xo and Yo =yo. This corresponds to the multi-stock model studied in class, but with notation (X+, Y₁) instead of (S(1), S(2)). Given the model above, the measure P is already the risk-neutral measure (Both stocks have rate of return r). We write σ = 0₁+0%. We consider a swap option, which gives you the right, at time T, to exchange one share of X for one share of Y. That is, the option has payoff F=(Yr-XT). (a) We first assume that r = 0 (for questions (a)-(f)). Write an explicit expression for the process Xt. Reminder before proceeding to question (b): Girsanov's theorem…
Problem 1. Multi-stock model We consider a 2-stock model similar to the one studied in class. Namely, we consider = S(1) S(2) = S(¹) exp (σ1B(1) + (M1 - 0/1 ) S(²) exp (02B(2) + (H₂- M2 where (B(¹) ) +20 and (B(2) ) +≥o are two Brownian motions, with t≥0 Cov (B(¹), B(2)) = p min{t, s}. " The purpose of this problem is to prove that there indeed exists a 2-dimensional Brownian motion (W+)+20 (W(1), W(2))+20 such that = S(1) S(2) = = S(¹) exp (011W(¹) + (μ₁ - 01/1) t) 롱) S(²) exp (021W (1) + 022W(2) + (112 - 03/01/12) t). where σ11, 21, 22 are constants to be determined (as functions of σ1, σ2, p). Hint: The constants will follow the formulas developed in the lectures. (a) To show existence of (Ŵ+), first write the expression for both W. (¹) and W (2) functions of (B(1), B(²)). as (b) Using the formulas obtained in (a), show that the process (WA) is actually a 2- dimensional standard Brownian motion (i.e. show that each component is normal, with mean 0, variance t, and that their…

Chapter 1 Solutions

Introduction to Probability and Statistics

Ch. 1.3 - Jeans A manufacturer of jeans has plants in...Ch. 1.3 - Prob. 1.12ECh. 1.3 - Want to Be President? Would you want to be the...Ch. 1.3 - Facebook Fanatics The social networking site...Ch. 1.3 - Back to Work How long does it take you to adjust...Ch. 1.5 - Construct a stem and leaf plot for these 50...Ch. 1.5 - Refer to Exercise 1.16. Construct a relative...Ch. 1.5 - Prob. 1.18ECh. 1.5 - A discrete variable can take on oniy the values 0....Ch. 1.5 - Prob. 1.20ECh. 1.5 - Prob. 1.21ECh. 1.5 - Prob. 1.22ECh. 1.5 - Cheeseburgers Create a dotplot for the number of...Ch. 1.5 - Prob. 1.24ECh. 1.5 - Prob. 1.25ECh. 1.5 - Prob. 1.26ECh. 1.5 - Education Pays Off! Education pays off, according...Ch. 1.5 - Preschool The ages (in months) at which 50...Ch. 1.5 - Prob. 1.29ECh. 1.5 - Prob. 1.30ECh. 1.5 - Prob. 1.31ECh. 1.5 - Prob. 1.32ECh. 1.5 - Prob. 1.33ECh. 1.5 - RBC Counts The red blood cell count of a healthy...Ch. 1.5 - Prob. 1.35ECh. 1.5 - Prob. 1.36ECh. 1.5 - Hazardous Waste How safe is your neighborhood? Are...Ch. 1 - Quantitative or Qualitative? Identify each...Ch. 1 - Symmetric or Skewed? Do you expect the...Ch. 1 - Continuous or Discrete? Identify each variable as...Ch. 1 - Prob. 1.41SECh. 1 - Continuous or Discrete, again Identify each...Ch. 1 - Aqua Running Aqua running has been suggested as a...Ch. 1 - Prob. 1.44SECh. 1 - Ages of Pennies We collected 50 pennies and...Ch. 1 - Prob. 1.46SECh. 1 - Presidential Vetoes Here is a list of the 44...Ch. 1 - Prob. 1.48SECh. 1 - Prob. 1.49SECh. 1 - Prob. 1.50SECh. 1 - Prob. 1.51SECh. 1 - Prob. 1.52SECh. 1 - Prob. 1.53SECh. 1 - Student Heights The self-reported heights of 105...Ch. 1 - Prob. 1.55SECh. 1 - Pulse Rates A group of 50 biomedical students...Ch. 1 - Prob. 1.57SECh. 1 - Prob. 1.58SECh. 1 - Prob. 1.59SECh. 1 - Prob. 1.60SECh. 1 - Prob. 1.61SECh. 1 - Old Faithful The data below are the wailing times...Ch. 1 - Prob. 1.63SECh. 1 - Prob. 1.64SECh. 1 - Prob. 1.65SECh. 1 - The number of Starhucks coffee shops in cities...Ch. 1 - What’s Normal? The 98.6 degree standard for human...
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