
Introduction to Statistics and Data Analysis
5th Edition
ISBN: 9781305445963
Author: PECK
Publisher: Cengage
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Chapter 10.2, Problem 12E
a.
To determine
Explain whether Type-I error or Type II error is said to be false positive.
b.
To determine
Delineate Type I error and discuss its consequences.
c.
To determine
Delineate a Type II error and describe its consequences.
d.
To determine
Identify the aspect of the relationship between the probability of Type I error and Type II error.
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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.)
Chapter 10 Solutions
Introduction to Statistics and Data Analysis
Ch. 10.1 - Explain why the statement x=50 is not a legitimate...Ch. 10.1 - For the following pairs, indicate which do not...Ch. 10.1 - To determine whether the pipe welds in a nuclear...Ch. 10.1 - Prob. 4ECh. 10.1 - Prob. 5ECh. 10.1 - Prob. 6ECh. 10.1 - Prob. 7ECh. 10.1 - A researcher speculates that because of...Ch. 10.1 - A county commissioner must vote on a resolution...Ch. 10.1 - A cruise ship charges passengers 3 for a can of...
Ch. 10.1 - Prob. 11ECh. 10.2 - Prob. 12ECh. 10.2 - Prob. 13ECh. 10.2 - Medical personnel are required to report suspected...Ch. 10.2 - Prob. 15ECh. 10.2 - A television manufacturer claims that (at least)...Ch. 10.2 - A manufacturer of hand-held calculators receives...Ch. 10.2 - Water specimens are taken from water used for...Ch. 10.2 - Suppose that for a particular hypothesis test, the...Ch. 10.2 - Suppose that you arc an inspector for the Fish and...Ch. 10.2 - Prob. 21ECh. 10.2 - An automobile manufacturer is considering using...Ch. 10.3 - Use the definition of the P-value to explain the...Ch. 10.3 - For which of the following P-values will the null...Ch. 10.3 - Prob. 25ECh. 10.3 - Let p denote the proportion of students at a...Ch. 10.3 - Assuming a random sample from a large population,...Ch. 10.3 - Prob. 28ECh. 10.3 - In a survey of 1000 women age 22 to 35 who work...Ch. 10.3 - The paper Debt Literacy, Financial Experiences and...Ch. 10.3 - "Most Like it Hot" is the title of a press release...Ch. 10.3 - In a survey of 1005 adult Americans, 46% indicated...Ch. 10.3 - Prob. 33ECh. 10.3 - Prob. 34ECh. 10.3 - Prob. 35ECh. 10.3 - Prob. 36ECh. 10.3 - Prob. 37ECh. 10.3 - The article Cops Get Screened for Digital Dirt...Ch. 10.3 - Refer back to the previous exercise. The actual...Ch. 10.3 - The report 2007 Electronic Monitoring ...Ch. 10.3 - Prob. 41ECh. 10.4 - Prob. 42ECh. 10.4 - Give as much information as you can about the...Ch. 10.4 - Paint used to paint lines on roads must reflect...Ch. 10.4 - A certain pen has been designed so that actual...Ch. 10.4 - Prob. 46ECh. 10.4 - The paper Playing Active Video Games Increases...Ch. 10.4 - Prob. 48ECh. 10.4 - Prob. 49ECh. 10.4 - Prob. 50ECh. 10.4 - Prob. 51ECh. 10.4 - Medical research has shown that repeated wrist...Ch. 10.4 - Prob. 53ECh. 10.4 - A comprehensive study conducted by the National...Ch. 10.4 - Prob. 55ECh. 10.4 - The paper titled Music for Pain Relief (The...Ch. 10.4 - Many consumers pay careful attention to stated...Ch. 10.4 - Much concern has been expressed regarding the...Ch. 10.5 - The power of a test is influenced by the sample...Ch. 10.5 - Prob. 60ECh. 10.5 - Let denote the mean lifetime (in hours) for a...Ch. 10.5 - The city council in a large city has become...Ch. 10.5 - The amount of shaft wear after a fixed mileage was...Ch. 10.5 - Optical fibers are used in telecommunications to...Ch. 10.5 - Prob. 65ECh. 10.6 - In 2006, Boston Scientific sought approval for a...Ch. 10.6 - The article Boy or Girl: Which Gender Baby Would...Ch. 10 - Prob. 68CRCh. 10 - In a national survey of 2013 adults, 1590...Ch. 10 - Students at the Akademia Podlaka conducted an...Ch. 10 - Prob. 71CRCh. 10 - Prob. 72CRCh. 10 - A number of initiatives on the topic of legalized...Ch. 10 - Prob. 74CRCh. 10 - Prob. 75CRCh. 10 - Prob. 76CRCh. 10 - Prob. 77CRCh. 10 - Duck hunting in populated areas faces opposition...Ch. 10 - Past experience has indicated that the response...Ch. 10 - An automobile manufacturer who wishes to advertise...Ch. 10 - A student organization uses the proceeds from a...Ch. 10 - A hot tub manufacturer advertises that with its...Ch. 10 - Prob. 1CRECh. 10 - Prob. 2CRECh. 10 - Prob. 3CRECh. 10 - Prob. 4CRECh. 10 - Prob. 5CRECh. 10 - The article Should Canada Allow Direct-to-Consumer...Ch. 10 - Prob. 7CRECh. 10 - It probably wouldnt surprise you to know that...Ch. 10 - The article Doctors Cite Burnout in Mistakes (San...Ch. 10 - The National Geographic Society conducted a study...Ch. 10 - Heinz Plays Catch-up After Under-Filling Ketchup...Ch. 10 - In a survey conducted by Yahoo Small Business,...Ch. 10 - In an AP-AOL sports poll (Associated Press,...Ch. 10 - Prob. 14CRECh. 10 - A survey of teenagers and parents in Canada...Ch. 10 - The same survey referenced in the previous...
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