Connect Hosted by ALEKS Access Card or Elementary Statistics
3rd Edition
ISBN: 9781260373752
Author: William Navidi Prof., Barry Monk Professor
Publisher: McGraw-Hill Education
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Chapter 11, Problem 2RE
To determine
The
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Several markets (Japan, Switzerland) introduced negative interest rates on their money market.
In this problem, we will consider an annual interest rate r < 0. We consider a stock modeled
by an N-period CRR model where each period is 1 year (At = 1) and the up and down factors
are u and d.
(a) We consider an American put option with strike price K and expiration T. Prove that if
<0, the optimal strategy is to wait until expiration T to exercise.
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…
Chapter 11 Solutions
Connect Hosted by ALEKS Access Card or Elementary Statistics
Ch. 11.1 - In Exercises 3 and 4, fill in each blank with the...Ch. 11.1 - Prob. 4ECh. 11.1 - Prob. 5ECh. 11.1 - Prob. 6ECh. 11.1 - A test was made of H0:1=2 versus H1:12. The sample...Ch. 11.1 - A test was made of H0:1=2 versus H1:12. The sample...Ch. 11.1 - More time on the Internet: The General Social...Ch. 11.1 - Low-fat or low-carb? Are low-fat diets or low-carb...Ch. 11.1 - Are you smarter than your older brother? In a...Ch. 11.1 - Recovering from surgery: A new postsurgical...
Ch. 11.1 - Contaminated water: The concentration of benzene...Ch. 11.1 - Exercise: Medical researchers conducted a study to...Ch. 11.1 - Mummys curse: King Tut was an ancient Egyptian...Ch. 11.1 - Baby weights: Following are weights in pounds for...Ch. 11.1 - Empathy: The Interpersonal Reactivity Index is a...Ch. 11.1 - Prob. 18ECh. 11.1 - Prob. 19ECh. 11.1 - Prob. 20ECh. 11.1 - Interpret calculator display: The following TI-84...Ch. 11.1 - Prob. 22ECh. 11.1 - Prob. 23ECh. 11.1 - Prob. 24ECh. 11.1 - Prob. 25ECh. 11.2 - In Exercises 3 and 4, fill in each blank with the...Ch. 11.2 - Prob. 4ECh. 11.2 - Prob. 5ECh. 11.2 - Prob. 6ECh. 11.2 - In a test for the difference between two...Ch. 11.2 - In a test for the difference between two...Ch. 11.2 - Childhood obesity: The National Health and...Ch. 11.2 - Pollution and altitude: In a random sample of 340...Ch. 11.2 - Preventing heart attacks: Medical researchers...Ch. 11.2 - Cholesterol: An article in the Archives of...Ch. 11.2 - Treating circulatory disease: Angioplasty is a...Ch. 11.2 - Hurricane damage: In August and September 2005,...Ch. 11.2 - Prob. 15ECh. 11.2 - Prob. 16ECh. 11.2 - Prob. 17ECh. 11.2 - Interpret calculator display: The following TI-84...Ch. 11.2 - Prob. 19ECh. 11.2 - Prob. 20ECh. 11.2 - Prob. 21ECh. 11.3 - In Exercises 3 and 4, fill in each blank with the...Ch. 11.3 - In Exercises 3 and 4, fill in each blank with the...Ch. 11.3 - Prob. 5ECh. 11.3 - Prob. 6ECh. 11.3 - Prob. 7ECh. 11.3 - Prob. 8ECh. 11.3 - Crossover trial: A crossover trial is a type of...Ch. 11.3 - Comparing scales: In an experiment to determine...Ch. 11.3 - Strength of concrete: The compressive strength. in...Ch. 11.3 - Truck pollution: In an experiment to determine the...Ch. 11.3 - Growth spurt: It is generally known that boys grow...Ch. 11.3 - Prob. 14ECh. 11.3 - Prob. 15ECh. 11.3 - Interpret calculator display: The following TI-84...Ch. 11.3 - Interpret computer output: The following MINITAB...Ch. 11.3 - Prob. 18ECh. 11.3 - Prob. 19ECh. 11.4 - In Exercises 5 and 6, fill in each blank with the...Ch. 11.4 - Prob. 6ECh. 11.4 - Prob. 7ECh. 11.4 - Prob. 8ECh. 11.4 - Find the critical value f0.05 for F7,20.Ch. 11.4 - Prob. 10ECh. 11.4 - An F-test with 12 degrees of freedom in the...Ch. 11.4 - Prob. 12ECh. 11.4 - Sugar content: A broth used to manufacture a...Ch. 11.4 - Hockey sticks: The breaking strength of hockey...Ch. 11.4 - Prob. 15ECh. 11.4 - Are you smarter than your older brother? In a...Ch. 11.4 - Prob. 17ECh. 11.5 - In Exercises 3 and 4, fill in each blank with the...Ch. 11.5 - Prob. 4ECh. 11.5 - Prob. 5ECh. 11.5 - Prob. 6ECh. 11.5 - Prob. 7ECh. 11.5 - Prob. 8ECh. 11.5 - Prob. 9ECh. 11.5 - Prob. 10ECh. 11.5 - Prob. 11ECh. 11.5 - Prob. 12ECh. 11.5 - Prob. 13ECh. 11 - Prob. 1CQCh. 11 - Prob. 2CQCh. 11 - Prob. 3CQCh. 11 - Prob. 4CQCh. 11 - Prob. 5CQCh. 11 - Prob. 6CQCh. 11 - Prob. 7CQCh. 11 - Prob. 8CQCh. 11 - Prob. 9CQCh. 11 - Prob. 10CQCh. 11 - Prob. 11CQCh. 11 - Prob. 12CQCh. 11 - Prob. 13CQCh. 11 - Refer to Exercise 12. Can you reject H0 at the...Ch. 11 - Prob. 15CQCh. 11 - Prob. 1RECh. 11 - Prob. 2RECh. 11 - Prob. 3RECh. 11 - Prob. 4RECh. 11 - Prob. 5RECh. 11 - Prob. 6RECh. 11 - Prob. 7RECh. 11 - Prob. 8RECh. 11 - Prob. 9RECh. 11 - Prob. 10RECh. 11 - Prob. 11RECh. 11 - Prob. 12RECh. 11 - Prob. 13RECh. 11 - Prob. 14RECh. 11 - Prob. 15RECh. 11 - Prob. 1WAICh. 11 - Prob. 2WAICh. 11 - Describe the differences between performing a...Ch. 11 - Prob. 4WAICh. 11 - Prob. 5WAICh. 11 - Prob. 1CSCh. 11 - Prob. 2CSCh. 11 - Prob. 3CSCh. 11 - Prob. 4CS
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- 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…arrow_forward2.2, 13.2-13.3) question: 5 point(s) possible ubmit test The accompanying table contains the data for the amounts (in oz) in cans of a certain soda. The cans are labeled to indicate that the contents are 20 oz of soda. Use the sign test and 0.05 significance level to test the claim that cans of this soda are filled so that the median amount is 20 oz. If the median is not 20 oz, are consumers being cheated? Click the icon to view the data. What are the null and alternative hypotheses? OA. Ho: Medi More Info H₁: Medi OC. Ho: Medi H₁: Medi Volume (in ounces) 20.3 20.1 20.4 Find the test stat 20.1 20.5 20.1 20.1 19.9 20.1 Test statistic = 20.2 20.3 20.3 20.1 20.4 20.5 Find the P-value 19.7 20.2 20.4 20.1 20.2 20.2 P-value= (R 19.9 20.1 20.5 20.4 20.1 20.4 Determine the p 20.1 20.3 20.4 20.2 20.3 20.4 Since the P-valu 19.9 20.2 19.9 Print Done 20 oz 20 oz 20 oz 20 oz ce that the consumers are being cheated.arrow_forwardT Teenage obesity (O), and weekly fast-food meals (F), among some selected Mississippi teenagers are: Name Obesity (lbs) # of Fast-foods per week Josh 185 10 Karl 172 8 Terry 168 9 Kamie Andy 204 154 12 6 (a) Compute the variance of Obesity, s²o, and the variance of fast-food meals, s², of this data. [Must show full work]. (b) Compute the Correlation Coefficient between O and F. [Must show full work]. (c) Find the Coefficient of Determination between O and F. [Must show full work]. (d) Obtain the Regression equation of this data. [Must show full work]. (e) Interpret your answers in (b), (c), and (d). (Full explanations required). Edit View Insert Format Tools Tablearrow_forward
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