Bundle: Introduction to Statistics and Data Analysis, 5th + WebAssign Printed Access Card: Peck/Olsen/Devore. 5th Edition, Single-Term
Bundle: Introduction to Statistics and Data Analysis, 5th + WebAssign Printed Access Card: Peck/Olsen/Devore. 5th Edition, Single-Term
5th Edition
ISBN: 9781305620711
Author: Roxy Peck, Chris Olsen, Jay L. Devore
Publisher: Cengage Learning
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Chapter 11.2, Problem 34E
To determine

Check whether there is convincing evidence that the mean reading differs for the two instruments.

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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 11 Solutions

Bundle: Introduction to Statistics and Data Analysis, 5th + WebAssign Printed Access Card: Peck/Olsen/Devore. 5th Edition, Single-Term

Ch. 11.1 - Prob. 11ECh. 11.1 - The paper Mood Food: Chocolate and Depressive...Ch. 11.1 - Prob. 13ECh. 11.1 - Example 11.1 looked at a study comparing students...Ch. 11.1 - Prob. 15ECh. 11.1 - Prob. 16ECh. 11.1 - A newspaper story headline reads Gender Plays Part...Ch. 11.1 - Prob. 18ECh. 11.1 - Fumonisins are environmental toxins produced by a...Ch. 11.1 - A researcher at the Medical College of Virginia...Ch. 11.1 - Do certain behaviors result in a severe drain on...Ch. 11.2 - Suppose that you were interested in investigating...Ch. 11.2 - Head movement evaluations are important because...Ch. 11.2 - To determine if chocolate milk was as effective as...Ch. 11.2 - The humorous paper Will Humans Swim Faster or...Ch. 11.2 - The study described in the paper Marketing Actions...Ch. 11.2 - Prob. 27ECh. 11.2 - The paper Less Air Pollution Leads to Rapid...Ch. 11.2 - The paper The Truth About Lying in Online Dating...Ch. 11.2 - Prob. 30ECh. 11.2 - Prob. 31ECh. 11.2 - The paper Quantitative Assessment of Glenohumeral...Ch. 11.2 - Two proposed computer mouse designs were compared...Ch. 11.2 - Prob. 34ECh. 11.2 - Prob. 35ECh. 11.2 - The authors of the paper Ultrasound Techniques...Ch. 11.3 - Some people seem to believe that you can fix...Ch. 11.3 - Prob. 38ECh. 11.3 - After the 2010 earthquake in Haiti, many...Ch. 11.3 - Prob. 40ECh. 11.3 - The report Audience Insights: Communicating to...Ch. 11.3 - Prob. 42ECh. 11.3 - Prob. 43ECh. 11.3 - Prob. 44ECh. 11.3 - The article Fish Oil Staves Off Schizophrenia (USA...Ch. 11.3 - The report Young People Living on the Edge...Ch. 11.3 - Prob. 47ECh. 11.3 - Prob. 48ECh. 11.3 - Prob. 49ECh. 11.3 - Prob. 50ECh. 11.3 - Prob. 51ECh. 11.3 - The article Spray Flu Vaccine May Work Better Than...Ch. 11.3 - Prob. 53ECh. 11.3 - The following quote is from the article Canadians...Ch. 11.3 - Prob. 55ECh. 11.3 - Women diagnosed with breast cancer whose tumors...Ch. 11.3 - Prob. 57ECh. 11.4 - The paper The Psychological Consequences of Money...Ch. 11.4 - An experiment to determine if an online...Ch. 11.4 - The paper Ready or Not? Criteria for Marriage...Ch. 11 - Prob. 61CRCh. 11 - Prob. 62CRCh. 11 - A deficiency of the trace element selenium in the...Ch. 11 - Prob. 64CRCh. 11 - Prob. 65CRCh. 11 - In a study of a proposed treatment for diabetes...Ch. 11 - When a surgeon repairs injuries, sutures (stitched...Ch. 11 - Prob. 68CRCh. 11 - In a study of memory recall, eight students from a...Ch. 11 - As part of a study to determine the effects of...Ch. 11 - Prob. 71CRCh. 11 - Prob. 72CRCh. 11 - The article Truth and DARE: Tracking Drug...Ch. 11 - The article Softball Sliding Injuries (American...Ch. 11 - Prob. 75CRCh. 11 - Wayne Gretzky was one of ice hockeys most prolific...Ch. 11 - Heres one to sink your teeth into: The authors of...Ch. 11 - Prob. 78CRCh. 11 - Dentists make many people nervous. To see whether...Ch. 11 - Prob. 80CRCh. 11 - Prob. 81CRCh. 11 - Both surface soil and subsoil specimens were taken...
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