MyLab Statistics with Pearson eText -- Standalone Access Card -- for Elementary Statistics Using Excel (My Stat Lab)
6th Edition
ISBN: 9780134748849
Author: Mario F. Triola
Publisher: PEARSON
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Chapter 1, Problem 4FDD
To determine
To explain: The design of a study for collecting data to determine whether the data is misleading to state that male symphony conductors live longer.
To identify: Whether the study is an experimental or an observational study.
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We consider a 4-dimensional stock price model given (under P) by
dẴ₁ = µ· Xt dt + йt · ΣdŴt
where (W) is an n-dimensional Brownian motion,
π = (0.02, 0.01, -0.02, 0.05),
0.2
0
0
0
0.3
0.4
0
0
Σ=
-0.1
-4a За
0
0.2
0.4 -0.1 0.2)
and a E R. We assume that ☑0 = (1, 1, 1, 1) and that the interest rate on the market is r = 0.02.
(a) Give a condition on a that would make stock #3 be the one with largest volatility.
(b) Find the diversification coefficient for this portfolio as a function of a.
(c) Determine the maximum diversification coefficient d that you could reach by varying the
value of a?
2
Question 1. Your manager asks you to explain why the Black-Scholes model may be inappro-
priate for pricing options in practice. Give one reason that would substantiate this claim?
Question 2. We consider stock #1 and stock #2 in the model of Problem 2. Your manager
asks you to pick only one of them to invest in based on the model provided. Which one do you
choose and why ?
Question 3. Let (St) to be an asset modeled by the Black-Scholes SDE. Let Ft be the price
at time t of a European put with maturity T and strike price K. Then, the discounted option
price process (ert Ft) t20 is a martingale. True or False? (Explain your answer.)
Question 4. You are considering pricing an American put option using a Black-Scholes model
for the underlying stock. An explicit formula for the price doesn't exist. In just a few words (no
more than 2 sentences), explain how you would proceed to price it.
Question 5. We model a short rate with a Ho-Lee model drt = ln(1+t) dt +2dWt. Then the
interest rate…
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.)
Chapter 1 Solutions
MyLab Statistics with Pearson eText -- Standalone Access Card -- for Elementary Statistics Using Excel (My Stat Lab)
Ch. 1.1 - 1. Online Medical Info USA Today posted this...Ch. 1.1 - 2. Reported Versus Measured In a survey of 1046...Ch. 1.1 - 3. Statistical Significance Versus Practical...Ch. 1.1 - 4. Correlation One study showed that for a recent...Ch. 1.1 - Consider the Source. In Exercises 5–8, determine...Ch. 1.1 - Consider the Source. In Exercises 5–8, determine...Ch. 1.1 - Consider the Source. In Exercises 5–8, determine...Ch. 1.1 - Consider the Source. In Exercises 5–8, determine...Ch. 1.1 - Sampling Method. In Exercises 9–12, determine...Ch. 1.1 - Sampling Method. In Exercises 9–12, determine...
Ch. 1.1 - Sampling Method. In Exercises 9-12, determine...Ch. 1.1 - Sampling Method. In Exercises 9–12, determine...Ch. 1.1 - Prob. 13BSCCh. 1.1 - Statistical Significance and Practical...Ch. 1.1 - Statistical Significance and Practical...Ch. 1.1 - Statistical Significance and Practical...Ch. 1.1 - In Exercises 17–20, refer to the sample of body...Ch. 1.1 - In Exercises 17–20, refer to the sample of body...Ch. 1.1 - Prob. 19BSCCh. 1.1 - In Exercises 17–20, refer to the sample of body...Ch. 1.1 - Prob. 21BSCCh. 1.1 - In Exercises 21–24, refer to the data in the table...Ch. 1.1 - Prob. 23BSCCh. 1.1 - In Exercises 21–24, refer to the data in the table...Ch. 1.1 - Prob. 25BSCCh. 1.1 - What’s Wrong? In Exercises 25–28, identify what is...Ch. 1.1 - What’s Wrong? In Exercises 25–28, identify what is...Ch. 1.1 - Prob. 28BSCCh. 1.1 - Prob. 29BSCCh. 1.1 - 30. Checking Job Applicants In a study conducted...Ch. 1.1 - Prob. 31BSCCh. 1.1 - Prob. 32BSCCh. 1.1 - 33. Percentages in Advertising An ad for Big...Ch. 1.1 - Prob. 34BSCCh. 1.1 - 35. Percentages In Advertising A New York Times...Ch. 1.1 - Prob. 36BSCCh. 1.1 - 37. What’s Wrong with This Picture? The Newport...Ch. 1.1 - 38. Falsifying Data A researcher at the...Ch. 1.2 - 1. Parameter and Statistic In a Harris Interactive...Ch. 1.2 - Prob. 2BSCCh. 1.2 - Prob. 3BSCCh. 1.2 - Prob. 4BSCCh. 1.2 - Prob. 5BSCCh. 1.2 - In Exercises 5–12, identify whether the given...Ch. 1.2 - Prob. 7BSCCh. 1.2 - Prob. 8BSCCh. 1.2 - Prob. 9BSCCh. 1.2 - Prob. 10BSCCh. 1.2 - Prob. 11BSCCh. 1.2 - Prob. 12BSCCh. 1.2 - Prob. 13BSCCh. 1.2 - Prob. 14BSCCh. 1.2 - Prob. 15BSCCh. 1.2 - Prob. 16BSCCh. 1.2 - Prob. 17BSCCh. 1.2 - In Exercises 13–20, determine whether the data are...Ch. 1.2 - Prob. 19BSCCh. 1.2 - In Exercises 13–20, determine whether the data are...Ch. 1.2 - Prob. 21BSCCh. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - Prob. 29BSCCh. 1.2 - Prob. 30BSCCh. 1.2 - Prob. 31BSCCh. 1.2 - Prob. 32BSCCh. 1.2 - Prob. 33BBCh. 1.3 - 1. Back Pain Treatment In a study designed to test...Ch. 1.3 - Prob. 2BSCCh. 1.3 - Prob. 3BSCCh. 1.3 - Prob. 4BSCCh. 1.3 - Prob. 5BSCCh. 1.3 - Prob. 6BSCCh. 1.3 - Prob. 7BSCCh. 1.3 - Prob. 8BSCCh. 1.3 - Prob. 9BSCCh. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - Critical Thinking: What’s Wrong? In Exercises...Ch. 1.3 - Critical Thinking: What’s Wrong? In Exercises...Ch. 1.3 - Critical Thinking: What’s Wrong? In Exercises...Ch. 1.3 - Prob. 24BSCCh. 1.3 - Prob. 25BSCCh. 1.3 - Prob. 26BSCCh. 1.3 - Prob. 27BSCCh. 1.3 - Prob. 28BSCCh. 1.3 - Prob. 29BBCh. 1.3 - Prob. 30BBCh. 1.3 - Prob. 31BBCh. 1.3 - Prob. 32BBCh. 1.3 - Prob. 33BBCh. 1.3 - Prob. 34BBCh. 1.3 - Prob. 35BBCh. 1.3 - Prob. 36BBCh. 1.3 - Prob. 37BBCh. 1 - Prob. 1CQQCh. 1 - 2. Hospitals Which of the following best describes...Ch. 1 - Prob. 3CQQCh. 1 - Prob. 4CQQCh. 1 - Prob. 5CQQCh. 1 - Prob. 6CQQCh. 1 - Prob. 7CQQCh. 1 - 8. Observational Study or Experiment Are the data...Ch. 1 - Prob. 9CQQCh. 1 - Prob. 10CQQCh. 1 - Prob. 1RECh. 1 - Prob. 2RECh. 1 - Prob. 3RECh. 1 - Prob. 4RECh. 1 - Prob. 5RECh. 1 - Prob. 6RECh. 1 - Prob. 7RECh. 1 - Prob. 8RECh. 1 - Prob. 9RECh. 1 - Prob. 10RECh. 1 - Prob. 1CRECh. 1 - Prob. 2CRECh. 1 - Prob. 3CRECh. 1 - Prob. 4CRECh. 1 - Prob. 5CRECh. 1 - Prob. 6CRECh. 1 - Prob. 7CRECh. 1 - Prob. 8CRECh. 1 - Prob. 9CRECh. 1 - Prob. 10CRECh. 1 - Prob. 11CRECh. 1 - Prob. 12CRECh. 1 - Prob. 2EPCh. 1 - Prob. 1FDDCh. 1 - Prob. 2FDDCh. 1 - Prob. 3FDDCh. 1 - Prob. 4FDD
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