WebAssign for Devore's Probability and Statistics for Engineering and the Sciences, 9th Edition [Instant Access], Single-Term
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Chapter 11.4, Problem 42E
To determine

Construct the ANOVA table and test all the hypotheses using 1% level of significance.

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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.)
Problem 4. Margrabe formula and the Greeks (20 pts) In the homework, we determined the Margrabe formula for the price of an option allowing you to swap an x-stock for a y-stock at time T. For stocks with initial values xo, yo, common volatility σ and correlation p, the formula was given by Fo=yo (d+)-x0Þ(d_), where In (±² Ꭲ d+ õ√T and σ = σ√√√2(1 - p). дго (a) We want to determine a "Greek" for ỡ on the option: find a formula for θα (b) Is дго θα positive or negative? (c) We consider a situation in which the correlation p between the two stocks increases: what can you say about the price Fo? (d) Assume that yo< xo and p = 1. What is the price of the option?
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Chapter 11 Solutions

WebAssign for Devore's Probability and Statistics for Engineering and the Sciences, 9th Edition [Instant Access], Single-Term

Ch. 11.1 - Prob. 11ECh. 11.1 - Prob. 12ECh. 11.1 - Prob. 13ECh. 11.1 - Prob. 14ECh. 11.1 - The power curves of Figures 10.5 and 10.6 can be...Ch. 11.2 - In an experiment to assess the effects of curing...Ch. 11.2 - Prob. 17ECh. 11.2 - The accompanying data resulted from an experiment...Ch. 11.2 - A two-way ANOVA was carried out to assess the...Ch. 11.2 - The article Fatigue Limits of Enamel Bonds with...Ch. 11.2 - In an experiment to investigate the effect of...Ch. 11.2 - Prob. 22ECh. 11.2 - Prob. 23ECh. 11.2 - Prob. 24ECh. 11.2 - Prob. 25ECh. 11.2 - Prob. 26ECh. 11.3 - The output of a continuous extruding machine that...Ch. 11.3 - Prob. 28ECh. 11.3 - Prob. 29ECh. 11.3 - Prob. 30ECh. 11.3 - Nickel titanium (NiTi) shape memory alloy (SMA)...Ch. 11.3 - Prob. 32ECh. 11.3 - Prob. 33ECh. 11.3 - The article The Responsiveness of Food Sales to...Ch. 11.3 - Prob. 35ECh. 11.3 - Prob. 36ECh. 11.3 - Prob. 37ECh. 11.4 - The accompanying data resulted from an experiment...Ch. 11.4 - The accompanying data resulted from a 23...Ch. 11.4 - In a study of processes used to remove impurities...Ch. 11.4 - Prob. 41ECh. 11.4 - Prob. 42ECh. 11.4 - Prob. 43ECh. 11.4 - a. In a 24 experiment, suppose two blocks are to...Ch. 11.4 - a. An experiment was carried out to investigate...Ch. 11.4 - Prob. 46ECh. 11.4 - a. In a seven-factor experiment (A,, G), suppose a...Ch. 11.4 - The article Applying Design of Experiments to...Ch. 11 - The results of a study on the effectiveness of...Ch. 11 - Prob. 51SECh. 11 - Prob. 52SECh. 11 - In an automated chemical coating process, the...Ch. 11 - Coal-fired power plants used in the electrical...Ch. 11 - Impurities in the form of iron oxides lower the...Ch. 11 - Factorial designs have been used in forestry to...Ch. 11 - Prob. 57SECh. 11 - Prob. 58SECh. 11 - The bond strength when mounting an integrated...Ch. 11 - Prob. 60SECh. 11 - Prob. 61SE
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