Elementary Statistics Using Excel (6th Edition)
6th Edition
ISBN: 9780134506623
Author: Mario F. Triola
Publisher: PEARSON
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Chapter 1.2, Problem 8BSC
To determine
Whether the value ‘146 garment workers’ is statistic or a parameter.
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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?
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
Chapter 1 Solutions
Elementary Statistics Using Excel (6th Edition)
Ch. 1.1 - 1. Online Medical Info USA Today posted this...Ch. 1.1 - 2. Reported Versus Measured In a survey of 1046...Ch. 1.1 - 3. Statistical Significance Versus Practical...Ch. 1.1 - 4. Correlation One study showed that for a recent...Ch. 1.1 - Consider the Source. In Exercises 5–8, determine...Ch. 1.1 - Consider the Source. In Exercises 5–8, determine...Ch. 1.1 - Consider the Source. In Exercises 5–8, determine...Ch. 1.1 - Consider the Source. In Exercises 5–8, determine...Ch. 1.1 - Sampling Method. In Exercises 9–12, determine...Ch. 1.1 - Sampling Method. In Exercises 9–12, determine...
Ch. 1.1 - Sampling Method. In Exercises 9-12, determine...Ch. 1.1 - Sampling Method. In Exercises 9–12, determine...Ch. 1.1 - Prob. 13BSCCh. 1.1 - Statistical Significance and Practical...Ch. 1.1 - Statistical Significance and Practical...Ch. 1.1 - Statistical Significance and Practical...Ch. 1.1 - In Exercises 17–20, refer to the sample of body...Ch. 1.1 - In Exercises 17–20, refer to the sample of body...Ch. 1.1 - Prob. 19BSCCh. 1.1 - In Exercises 17–20, refer to the sample of body...Ch. 1.1 - Prob. 21BSCCh. 1.1 - In Exercises 21–24, refer to the data in the table...Ch. 1.1 - Prob. 23BSCCh. 1.1 - In Exercises 21–24, refer to the data in the table...Ch. 1.1 - Prob. 25BSCCh. 1.1 - What’s Wrong? In Exercises 25–28, identify what is...Ch. 1.1 - What’s Wrong? In Exercises 25–28, identify what is...Ch. 1.1 - Prob. 28BSCCh. 1.1 - Prob. 29BSCCh. 1.1 - 30. Checking Job Applicants In a study conducted...Ch. 1.1 - Prob. 31BSCCh. 1.1 - Prob. 32BSCCh. 1.1 - 33. Percentages in Advertising An ad for Big...Ch. 1.1 - Prob. 34BSCCh. 1.1 - 35. Percentages In Advertising A New York Times...Ch. 1.1 - Prob. 36BSCCh. 1.1 - 37. What’s Wrong with This Picture? The Newport...Ch. 1.1 - 38. Falsifying Data A researcher at the...Ch. 1.2 - 1. Parameter and Statistic In a Harris Interactive...Ch. 1.2 - Prob. 2BSCCh. 1.2 - Prob. 3BSCCh. 1.2 - Prob. 4BSCCh. 1.2 - Prob. 5BSCCh. 1.2 - In Exercises 5–12, identify whether the given...Ch. 1.2 - Prob. 7BSCCh. 1.2 - Prob. 8BSCCh. 1.2 - Prob. 9BSCCh. 1.2 - Prob. 10BSCCh. 1.2 - Prob. 11BSCCh. 1.2 - Prob. 12BSCCh. 1.2 - Prob. 13BSCCh. 1.2 - Prob. 14BSCCh. 1.2 - Prob. 15BSCCh. 1.2 - Prob. 16BSCCh. 1.2 - Prob. 17BSCCh. 1.2 - In Exercises 13–20, determine whether the data are...Ch. 1.2 - Prob. 19BSCCh. 1.2 - In Exercises 13–20, determine whether the data are...Ch. 1.2 - Prob. 21BSCCh. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - In Exercises 21–28, determine which of the four...Ch. 1.2 - Prob. 29BSCCh. 1.2 - Prob. 30BSCCh. 1.2 - Prob. 31BSCCh. 1.2 - Prob. 32BSCCh. 1.2 - Prob. 33BBCh. 1.3 - 1. Back Pain Treatment In a study designed to test...Ch. 1.3 - Prob. 2BSCCh. 1.3 - Prob. 3BSCCh. 1.3 - Prob. 4BSCCh. 1.3 - Prob. 5BSCCh. 1.3 - Prob. 6BSCCh. 1.3 - Prob. 7BSCCh. 1.3 - Prob. 8BSCCh. 1.3 - Prob. 9BSCCh. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - In Exercises 9–20, identify which of these types...Ch. 1.3 - Critical Thinking: What’s Wrong? In Exercises...Ch. 1.3 - Critical Thinking: What’s Wrong? In Exercises...Ch. 1.3 - Critical Thinking: What’s Wrong? In Exercises...Ch. 1.3 - Prob. 24BSCCh. 1.3 - Prob. 25BSCCh. 1.3 - Prob. 26BSCCh. 1.3 - Prob. 27BSCCh. 1.3 - Prob. 28BSCCh. 1.3 - Prob. 29BBCh. 1.3 - Prob. 30BBCh. 1.3 - Prob. 31BBCh. 1.3 - Prob. 32BBCh. 1.3 - Prob. 33BBCh. 1.3 - Prob. 34BBCh. 1.3 - Prob. 35BBCh. 1.3 - Prob. 36BBCh. 1.3 - Prob. 37BBCh. 1 - Prob. 1CQQCh. 1 - 2. Hospitals Which of the following best describes...Ch. 1 - Prob. 3CQQCh. 1 - Prob. 4CQQCh. 1 - Prob. 5CQQCh. 1 - Prob. 6CQQCh. 1 - Prob. 7CQQCh. 1 - 8. Observational Study or Experiment Are the data...Ch. 1 - Prob. 9CQQCh. 1 - Prob. 10CQQCh. 1 - Prob. 1RECh. 1 - Prob. 2RECh. 1 - Prob. 3RECh. 1 - Prob. 4RECh. 1 - Prob. 5RECh. 1 - Prob. 6RECh. 1 - Prob. 7RECh. 1 - Prob. 8RECh. 1 - Prob. 9RECh. 1 - Prob. 10RECh. 1 - Prob. 1CRECh. 1 - Prob. 2CRECh. 1 - Prob. 3CRECh. 1 - Prob. 4CRECh. 1 - Prob. 5CRECh. 1 - Prob. 6CRECh. 1 - Prob. 7CRECh. 1 - Prob. 8CRECh. 1 - Prob. 9CRECh. 1 - Prob. 10CRECh. 1 - Prob. 11CRECh. 1 - Prob. 12CRECh. 1 - Prob. 2EPCh. 1 - Prob. 1FDDCh. 1 - Prob. 2FDDCh. 1 - Prob. 3FDDCh. 1 - Prob. 4FDD
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- 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…arrow_forwardIn 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.)arrow_forwardThe managing director of a consulting group has the accompanying monthly data on total overhead costs and professional labor hours to bill to clients. Complete parts a through c. Question content area bottom Part 1 a. Develop a simple linear regression model between billable hours and overhead costs. Overhead Costsequals=212495.2212495.2plus+left parenthesis 42.4857 right parenthesis42.485742.4857times×Billable Hours (Round the constant to one decimal place as needed. Round the coefficient to four decimal places as needed. Do not include the $ symbol in your answers.) Part 2 b. Interpret the coefficients of your regression model. Specifically, what does the fixed component of the model mean to the consulting firm? Interpret the fixed term, b 0b0, if appropriate. Choose the correct answer below. A. The value of b 0b0 is the predicted billable hours for an overhead cost of 0 dollars. B. It is not appropriate to interpret b 0b0, because its value…arrow_forward
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