(a) To find: A long-range prediction of the percent of males in the various income groups.

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Answer 1

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Chapter 11.5, Problem 11E

To determine

(a)

To find:

A long-range prediction of the percent of males in the various income groups.

To determine

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

To determine

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.

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Construct a know-show table for each statement below that appears to be true.

Problem 3. Pricing a multi-stock option the Margrabe formula The purpose of this problem is to price a swap option in a 2-stock model, similarly as what we did in the example in the lectures. We consider a two-dimensional Brownian motion given by W₁ = (W(¹), W(2)) on a probability space (Q, F,P). Two stock prices are modeled by the following equations: dX = dY₁ = X₁ (rdt+ rdt+0₁dW!) (²)), Y₁ (rdt+dW+0zdW!"), with Xo xo and Yo =yo. This corresponds to the multi-stock model studied in class, but with notation (X+, Y₁) instead of (S(1), S(2)). Given the model above, the measure P is already the risk-neutral measure (Both stocks have rate of return r). We write σ = 0₁+0%. We consider a swap option, which gives you the right, at time T, to exchange one share of X for one share of Y. That is, the option has payoff F=(Yr-XT). (a) We first assume that r = 0 (for questions (a)-(f)). Write an explicit expression for the process Xt. Reminder before proceeding to question (b): Girsanov's theorem…

Problem 1. Multi-stock model We consider a 2-stock model similar to the one studied in class. Namely, we consider = S(1) S(2) = S(¹) exp (σ1B(1) + (M1 - 0/1 ) S(²) exp (02B(2) + (H₂- M2 where (B(¹) ) +20 and (B(2) ) +≥o are two Brownian motions, with t≥0 Cov (B(¹), B(2)) = p min{t, s}. " The purpose of this problem is to prove that there indeed exists a 2-dimensional Brownian motion (W+)+20 (W(1), W(2))+20 such that = S(1) S(2) = = S(¹) exp (011W(¹) + (μ₁ - 01/1) t) 롱) S(²) exp (021W (1) + 022W(2) + (112 - 03/01/12) t). where σ11, 21, 22 are constants to be determined (as functions of σ1, σ2, p). Hint: The constants will follow the formulas developed in the lectures. (a) To show existence of (Ŵ+), first write the expression for both W. (¹) and W (2) functions of (B(1), B(²)). as (b) Using the formulas obtained in (a), show that the process (WA) is actually a 2- dimensional standard Brownian motion (i.e. show that each component is normal, with mean 0, variance t, and that their…

Answer 2

Question

Chapter 11.5, Problem 11E

To determine

(a)

To find:

A long-range prediction of the percent of males in the various income groups.

To determine

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

To determine

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 11.5, Problem 11E

To determine

(a)

To find:

A long-range prediction of the percent of males in the various income groups.

To determine

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

To determine

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 11.5, Problem 11E

To determine

(a)

To find:

A long-range prediction of the percent of males in the various income groups.

To determine

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

To determine

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 5

Chapter 11.5, Problem 11E

To determine

(a)

To find:

A long-range prediction of the percent of males in the various income groups.

To determine

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

To determine

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.

Answer 6

Chapter 11.5, Problem 11E

To determine

(a)

To find:

A long-range prediction of the percent of males in the various income groups.

Answer 7

Chapter 11.5, Problem 11E

To determine

(a)

To find:

A long-range prediction of the percent of males in the various income groups.

Answer 8

To determine

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

Answer 9

To determine

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

Answer 10

To determine

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.

Answer 11

To determine

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.

Answer 12

Expert Solution & Answer

Answer 13

Expert Solution & Answer

Answer 14

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Answer 15

Ch. 11.0A - In Exercises 1-10, a find the dimensions of the...Ch. 11.0A - Prob. 2E Ch. 11.0A - Prob. 3E Ch. 11.0A - Prob. 4E Ch. 11.0A - Prob. 5E Ch. 11.0A - Prob. 6E Ch. 11.0A - Prob. 7E Ch. 11.0A - Prob. 8E Ch. 11.0A - Prob. 9E Ch. 11.0A - In Exercises 1-10, a find the dimensions of the...

(a) To find: A long-range prediction of the percent of males in the various income groups.

Solution Summary: The author explains how to find the equilibrium matrix L for more than two unknowns.

Concept explainers

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(a)

To find:

A long-range prediction of the percent of males in the various income groups.

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.

Want to see the full answer?

Chapter 11 Solutions

(a) To find: A long-range prediction of the percent of males in the various income groups.

Solution Summary: The author explains how to find the equilibrium matrix L for more than two unknowns.

Concept explainers

Videos

(a) To find: A long-range prediction of the percent of males in the various income groups.

(b) To explain: The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

(c) To describe: The assumptions are made in the prediction of percentages of males in the income group.

Want to see the full answer?

Chapter 11 Solutions

(a)

To find:

A long-range prediction of the percent of males in the various income groups.

(b)

To explain:

The statement “The predictions in part (a) are not 10%, 40%, 40%, and 10%”.

(c)

To describe:

The assumptions are made in the prediction of percentages of males in the income group.