Discrete Mathematics With Applications
Discrete Mathematics With Applications
5th Edition
ISBN: 9781337694193
Author: EPP, Susanna S.
Publisher: Cengage Learning,
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Chapter 12.3, Problem 10ES
To determine

To check whether the given two finite-state automata A and A' are equivalent or not.

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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 12 Solutions

Discrete Mathematics With Applications

Ch. 12.1 - Prob. 11TYCh. 12.1 - Prob. 12TYCh. 12.1 - Prob. 1ESCh. 12.1 - Prob. 2ESCh. 12.1 - Prob. 3ESCh. 12.1 - In 4—6, describe L1L2,L1L2, and (L1L2)*for the...Ch. 12.1 - Prob. 5ESCh. 12.1 - Prob. 6ESCh. 12.1 - Prob. 7ESCh. 12.1 - Prob. 8ESCh. 12.1 - In 7—9, add parentheses to emphasize the order of...Ch. 12.1 - Prob. 10ESCh. 12.1 - In 10—12, use the rules about order of precedence...Ch. 12.1 - Prob. 12ESCh. 12.1 - In 13—15, use set notation to derive the language...Ch. 12.1 - Prob. 14ESCh. 12.1 - Prob. 15ESCh. 12.1 - Prob. 16ESCh. 12.1 - In 16—18, write five strings that belong to the...Ch. 12.1 - Prob. 18ESCh. 12.1 - Prob. 19ESCh. 12.1 - Prob. 20ESCh. 12.1 - In 19—21, use words to describe the language...Ch. 12.1 - Prob. 22ESCh. 12.1 - In 22—24, indicate whether the given strings...Ch. 12.1 - Prob. 24ESCh. 12.1 - Prob. 25ESCh. 12.1 - Prob. 26ESCh. 12.1 - In 25—27, find a regular expression that defines...Ch. 12.1 - Let r, s, and t be regular expressions over...Ch. 12.1 - Prob. 29ESCh. 12.1 - Prob. 30ESCh. 12.1 - Prob. 31ESCh. 12.1 - In 31—39, write a regular expression to define the...Ch. 12.1 - Prob. 33ESCh. 12.1 - Prob. 34ESCh. 12.1 - Prob. 35ESCh. 12.1 - Prob. 36ESCh. 12.1 - Prob. 37ESCh. 12.1 - Prob. 38ESCh. 12.1 - Prob. 39ESCh. 12.1 - Prob. 40ESCh. 12.1 - Write a regular expression to define the set of...Ch. 12.2 - The five objects that make up a finite-state...Ch. 12.2 - The next-state table for an automaton shows the...Ch. 12.2 - In the annotated next-state table, the initial...Ch. 12.2 - A string w consisting of input symbols is accepted...Ch. 12.2 - The language accepted by a finite-state automaton...Ch. 12.2 - If N is the next-stale function for a finite-state...Ch. 12.2 - One part of Kleene’s theorem says that given any...Ch. 12.2 - The second part of Kleene’s theorem says that...Ch. 12.2 - A regular language is .__________Ch. 12.2 - Given the language consisting of all strings of...Ch. 12.2 - Find the state of the vending machine in Example...Ch. 12.2 - Prob. 2ESCh. 12.2 - Prob. 3ESCh. 12.2 - Prob. 4ESCh. 12.2 - Prob. 5ESCh. 12.2 - In 2—7, a finite-state automaton is given by a...Ch. 12.2 - In 2—7, a finite-state automaton is given by a...Ch. 12.2 - In 8 and 9, a finite-state automaton is given by...Ch. 12.2 - In 8 and 9, a finite-state automaton is given by...Ch. 12.2 - A finite-state automaton A given by the transition...Ch. 12.2 - A finite-state automaton A given by the transition...Ch. 12.2 - Prob. 12ESCh. 12.2 - Consider again the finite-state automaton of...Ch. 12.2 - In each of 14—19, (a) find the language accepted...Ch. 12.2 - Prob. 15ESCh. 12.2 - Prob. 16ESCh. 12.2 - Prob. 17ESCh. 12.2 - Prob. 18ESCh. 12.2 - Prob. 19ESCh. 12.2 - In each of 20—28, (a) design an automaton with the...Ch. 12.2 - Prob. 21ESCh. 12.2 - Prob. 22ESCh. 12.2 - Prob. 23ESCh. 12.2 - Prob. 24ESCh. 12.2 - Prob. 25ESCh. 12.2 - Prob. 26ESCh. 12.2 - In each of 20—28, (a) design an automaton with the...Ch. 12.2 - Prob. 28ESCh. 12.2 - Prob. 29ESCh. 12.2 - Prob. 30ESCh. 12.2 - In 29—47, design a finite-state automaton to...Ch. 12.2 - Prob. 32ESCh. 12.2 - Prob. 33ESCh. 12.2 - Prob. 34ESCh. 12.2 - In 29—47, design a finite-state automaton to...Ch. 12.2 - Prob. 36ESCh. 12.2 - Prob. 37ESCh. 12.2 - Prob. 38ESCh. 12.2 - Prob. 39ESCh. 12.2 - Prob. 40ESCh. 12.2 - Prob. 41ESCh. 12.2 - Prob. 42ESCh. 12.2 - Prob. 43ESCh. 12.2 - Prob. 44ESCh. 12.2 - Prob. 45ESCh. 12.2 - In 29—47, design a finite-state automaton to...Ch. 12.2 - Prob. 47ESCh. 12.2 - Prob. 48ESCh. 12.2 - Write a computer algorithm that simulates the...Ch. 12.2 - Prob. 50ESCh. 12.2 - Prob. 51ESCh. 12.2 - Prob. 52ESCh. 12.2 - Prob. 53ESCh. 12.2 - a. Let A be a finite-state automaton with input...Ch. 12.3 - Given a finite-state automaton A with...Ch. 12.3 - Prob. 2TYCh. 12.3 - Given states s and t in a finite-state automaton...Ch. 12.3 - Prob. 4TYCh. 12.3 - Prob. 5TYCh. 12.3 - Consider the finite-state automaton A given by the...Ch. 12.3 - Consider the finite-state automaton A given by the...Ch. 12.3 - Consider the finite-state automaon A discussed in...Ch. 12.3 - Consider the finite-state automaton given by the...Ch. 12.3 - Consider the finite-state automaton given by the...Ch. 12.3 - Consider the finite-state automaton given by the...Ch. 12.3 - Prob. 7ESCh. 12.3 - Prob. 8ESCh. 12.3 - Prob. 9ESCh. 12.3 - Prob. 10ESCh. 12.3 - Prob. 11ESCh. 12.3 - Prob. 12ESCh. 12.3 - Prob. 13ESCh. 12.3 - Prob. 14ESCh. 12.3 - Prob. 15ESCh. 12.3 - Prob. 16ESCh. 12.3 - Prob. 17ESCh. 12.3 - Prob. 18ES
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