MATHEMATICS WITH APPL....-ACCESS
12th Edition
ISBN: 9780135240687
Author: Lial
Publisher: PEARSON
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Chapter 12.3, Problem 21E
To determine
To calculate: The locations of absolute extrema of the function given below on the given interval:
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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
MATHEMATICS WITH APPL....-ACCESS
Ch. 12.1 - Checkpoint 1
For what values of x is the function...Ch. 12.1 - Checkpoint 2
Find all intervals on which is...Ch. 12.1 - Checkpoint 3
Identity the x-values of all points...Ch. 12.1 - Checkpoint 4
Find the critical numbers for each of...Ch. 12.1 - Prob. 5CPCh. 12.1 - Prob. 6CPCh. 12.1 - Checkpoint 7 Find the locations of the local...Ch. 12.1 - Prob. 8CPCh. 12.1 - Checkpoint 9
If a sales function is given by...Ch. 12.1 - Prob. 1E
Ch. 12.1 - Prob. 2ECh. 12.1 - Prob. 3ECh. 12.1 - Prob. 4ECh. 12.1 - Prob. 5ECh. 12.1 - Prob. 6ECh. 12.1 - Prob. 7ECh. 12.1 - Prob. 8ECh. 12.1 - Find the intervals on which each function is...Ch. 12.1 - Find the intervals on which each function is...Ch. 12.1 - Prob. 13ECh. 12.1 - Prob. 12ECh. 12.1 - Prob. 15ECh. 12.1 - Find the intervals on which each function is...Ch. 12.1 - Find the intervals on which each function is...Ch. 12.1 - Find the intervals on which each function is...Ch. 12.1 - Prob. 11ECh. 12.1 - Prob. 14ECh. 12.1 - Prob. 19ECh. 12.1 - Prob. 20ECh. 12.1 - Prob. 21ECh. 12.1 - Determine the location of each local extremum of...Ch. 12.1 - Prob. 23ECh. 12.1 - Prob. 24ECh. 12.1 - Prob. 25ECh. 12.1 - Prob. 26ECh. 12.1 - Determine the location of each local extremum of...Ch. 12.1 - Determine the location of each local extremum of...Ch. 12.1 - Prob. 29ECh. 12.1 - Prob. 30ECh. 12.1 - Determine the location of each local extremum of...Ch. 12.1 - Prob. 32ECh. 12.1 - In Exercises 29–40, use the first-derivative test...Ch. 12.1 - In Exercises 29–40, use the first-derivative test...Ch. 12.1 - In Exercises 29–40, use the first-derivative test...Ch. 12.1 - Prob. 36ECh. 12.1 - Prob. 37ECh. 12.1 - Prob. 38ECh. 12.1 - Prob. 39ECh. 12.1 - Prob. 40ECh. 12.1 - Use the maximum/minimum finder on a graphing...Ch. 12.1 - Prob. 42ECh. 12.1 - Prob. 43ECh. 12.1 - Prob. 44ECh. 12.1 - Work the given exercises. (See Examples 1 and...Ch. 12.1 - Prob. 46ECh. 12.1 - Prob. 48ECh. 12.1 - Prob. 47ECh. 12.1 - Work the given exercises. (See Examples 5 and 9.)...Ch. 12.1 - Prob. 50ECh. 12.1 - Prob. 51ECh. 12.1 - 51. Physical Science A Boston Red Sox pitcher...Ch. 12.1 - Prob. 52ECh. 12.1 - Work the given exercises. (See Examples 5 and 9.)...Ch. 12.1 - Prob. 55ECh. 12.1 - Work these exercises. You may need to use the...Ch. 12.1 - Prob. 56ECh. 12.1 - Work these exercises. (See Examples 5 and 9.)...Ch. 12.1 - Work these exercises. (See Examples 5 and 9.) IBM...Ch. 12.1 - Work these exercises. You may need to use the...Ch. 12.1 - Work these exercises. You may need to use the...Ch. 12.1 - Prob. 62ECh. 12.1 - Prob. 63ECh. 12.1 - Prob. 64ECh. 12.1 - 65. Social Science A group of researchers found...Ch. 12.1 - Prob. 66ECh. 12.1 - Prob. 68ECh. 12.1 - Prob. 67ECh. 12.1 - Prob. 69ECh. 12.1 - Prob. 70ECh. 12.2 - Checkpoint 1 Let f(x)=x35x27x+99. Find f(x); f(x);...Ch. 12.2 - Prob. 2CPCh. 12.2 - Prob. 3CPCh. 12.2 - Prob. 4CPCh. 12.2 - Prob. 5CPCh. 12.2 - Prob. 6CPCh. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - Prob. 3ECh. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - Prob. 15ECh. 12.2 - Prob. 16ECh. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find . (See Examples...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - For each of these functions, find and (See...Ch. 12.2 - In Exercises 19 and 20, P(t) is the price of a...Ch. 12.2 - In Exercise 19 and 20, is the price of a certain...Ch. 12.2 - Physical Science Each of the functions in...Ch. 12.2 - Physical Science Each of the functions in...Ch. 12.2 - Prob. 23ECh. 12.2 - Prob. 24ECh. 12.2 - Prob. 25ECh. 12.2 - Prob. 26ECh. 12.2 - Find the largest open intervals on which each...Ch. 12.2 - Prob. 28ECh. 12.2 - Find the largest open intervals on which each...Ch. 12.2 - Find the largest open intervals on which each...Ch. 12.2 - Find the largest open intervals on which each...Ch. 12.2 - Find the largest open intervals on which each...Ch. 12.2 - Prob. 33ECh. 12.2 - Prob. 34ECh. 12.2 - Business In Exercises 33–36, find the point of...Ch. 12.2 - Business In Exercises 33–36, find the point of...Ch. 12.2 - Find all critical numbers of the functions in...Ch. 12.2 - Find all critical numbers of the functions in...Ch. 12.2 - Find all critical numbers of the functions in...Ch. 12.2 - Prob. 40ECh. 12.2 - Prob. 41ECh. 12.2 - Prob. 42ECh. 12.2 - Prob. 43ECh. 12.2 - Prob. 44ECh. 12.2 - Prob. 45ECh. 12.2 - Find all critical numbers of the functions in...Ch. 12.2 - Prob. 47ECh. 12.2 - Prob. 48ECh. 12.2 - Prob. 51ECh. 12.2 - Prob. 52ECh. 12.2 - Prob. 49ECh. 12.2 - Prob. 50ECh. 12.2 - Prob. 56ECh. 12.2 - Prob. 53ECh. 12.2 - Prob. 54ECh. 12.2 - Prob. 55ECh. 12.2 - Prob. 57ECh. 12.2 - Prob. 58ECh. 12.2 - Prob. 59ECh. 12.2 - Prob. 60ECh. 12.2 - Prob. 61ECh. 12.2 - Prob. 62ECh. 12.2 - 65. Social Science The population of Wyoming (in...Ch. 12.2 - Prob. 65ECh. 12.2 - Prob. 66ECh. 12.3 - Checkpoint 1
Find the location of the absolute...Ch. 12.3 - Prob. 2CPCh. 12.3 - Prob. 3CPCh. 12.3 - Prob. 4CPCh. 12.3 - Prob. 5CPCh. 12.3 - Checkpoint 6
In Example 9, suppose annual demand...Ch. 12.3 - Find the location of the absolute maximum and...Ch. 12.3 - Find the location of the absolute maximum and...Ch. 12.3 - Find the location of the absolute maximum and...Ch. 12.3 - Find the location of the absolute maximum and...Ch. 12.3 - Find the location of the absolute maximum and...Ch. 12.3 - Find the location of the absolute maximum and...Ch. 12.3 - Find the locations of the absolute extrema of each...Ch. 12.3 - Find the locations of the absolute extrema of each...Ch. 12.3 - Find the absolute extrema of each function on the...Ch. 12.3 - Find the absolute extrema of each function on the...Ch. 12.3 - Find the absolute extrema of each function on the...Ch. 12.3 - Find the absolute extrema of each function on the...Ch. 12.3 - Find the locations of the absolute extrema of each...Ch. 12.3 - Prob. 14ECh. 12.3 - Find the absolute extrema of each function on the...Ch. 12.3 - Find the absolute extrema of each function on the...Ch. 12.3 - Find the absolute extrema of each function on the...Ch. 12.3 - Prob. 18ECh. 12.3 - Prob. 19ECh. 12.3 - Prob. 20ECh. 12.3 - Prob. 21ECh. 12.3 - Prob. 23ECh. 12.3 - If possible, find an absolute extremum of each...Ch. 12.3 - If possible, find an absolute extremum of each...Ch. 12.3 - Prob. 26ECh. 12.3 - Work these problems. (See Example 5.)
25. Business...Ch. 12.3 - Work these problems. (See Example 5.)
26. Business...Ch. 12.3 - Work these exercises. Corporate Profits Total...Ch. 12.3 - Work these exercises.
30. Corporate Taxes For the...Ch. 12.3 - 31. Business A manufacturer produces gas grills...Ch. 12.3 - 32. Business Saltwater taffy can be sold wholesale...Ch. 12.3 - Work these exercises. Entertainment Expenditures...Ch. 12.3 - Work these exercises.
34. Consumer Spending...Ch. 12.3 - Work these exercises. Natural Science A lake...Ch. 12.3 - Prob. 38ECh. 12.3 - Prob. 39ECh. 12.3 - Prob. 40ECh. 12.3 - Prob. 41ECh. 12.3 - Prob. 42ECh. 12.3 - Prob. 43ECh. 12.3 - 42. Business A cylindrical can of volume 58 cubic...Ch. 12.3 - Prob. 45ECh. 12.3 - Prob. 46ECh. 12.3 - Prob. 47ECh. 12.3 - 46. Business A rectangular field is to be enclosed...Ch. 12.3 - 47. Business A mathematics book is to contain 36...Ch. 12.3 - Prob. 50ECh. 12.3 - 49. Business If the price charged for a candy bar...Ch. 12.3 - 50. Business A company makes plastic buckets for...Ch. 12.3 - 51. Business We can use the function
to model the...Ch. 12.3 - 52. Business A rock-and-roll band travels from...Ch. 12.3 - 53. Natural Science Homing pigeons avoid flying...Ch. 12.3 - 54. Business A company wishes to run a utility...Ch. 12.3 - Prob. 57ECh. 12.3 - Prob. 58ECh. 12.3 - Prob. 59ECh. 12.3 - Prob. 60ECh. 12.3 - Prob. 61ECh. 12.3 - 60. Business A restaurant has an annual demand for...Ch. 12.4 - Checkpoint 1
Find for
Ch. 12.4 - Prob. 2CPCh. 12.4 - Prob. 3CPCh. 12.4 - Prob. 4CPCh. 12.4 - Prob. 5CPCh. 12.4 - Prob. 6CPCh. 12.4 - Checkpoint 7
Suppose the sales function in Example...Ch. 12.4 - Prob. 1ECh. 12.4 - Prob. 2ECh. 12.4 - Find by implicit differentiation. (See Examples...Ch. 12.4 - Find by implicit differentiation. (See Examples...Ch. 12.4 - Prob. 5ECh. 12.4 - Prob. 6ECh. 12.4 - Prob. 7ECh. 12.4 - Prob. 8ECh. 12.4 - Prob. 9ECh. 12.4 - Prob. 10ECh. 12.4 - Prob. 11ECh. 12.4 - Find by implicit differentiation. (See Examples...Ch. 12.4 - Prob. 13ECh. 12.4 - Prob. 14ECh. 12.4 - Prob. 15ECh. 12.4 - Find by implicit differentiation. (See Examples...Ch. 12.4 - Prob. 17ECh. 12.4 - Prob. 18ECh. 12.4 - Prob. 19ECh. 12.4 - Find at the given point. (See Example 5.)
20.
Ch. 12.4 - Find at the given point. (See Example 5.)
21.
Ch. 12.4 - Prob. 22ECh. 12.4 - Prob. 23ECh. 12.4 - Find at the given point. (See Example 5.)
23.
Ch. 12.4 - Prob. 25ECh. 12.4 - Prob. 26ECh. 12.4 - Prob. 27ECh. 12.4 - Prob. 28ECh. 12.4 - Prob. 29ECh. 12.4 - Prob. 30ECh. 12.4 - Prob. 31ECh. 12.4 - Prob. 32ECh. 12.4 - Find the equation of the tangent line to the curve...Ch. 12.4 - Prob. 34ECh. 12.4 - Prob. 35ECh. 12.4 - Prob. 36ECh. 12.4 - Prob. 37ECh. 12.4 - Prob. 38ECh. 12.4 - Prob. 39ECh. 12.4 - Prob. 40ECh. 12.4 - 41. Business A night club has approximated the...Ch. 12.4 - 42. Business The demand to download a hit single...Ch. 12.4 - Work these exercises. Bank of America For Bank of...Ch. 12.4 - Work these exercises.
44. For the equation given...Ch. 12.4 - Work these exercises. Walt Disney Company The...Ch. 12.4 - Work these exercises.
46. For the equation given...Ch. 12.4 - Prob. 47ECh. 12.4 - 48. Business At a certain online printing service,...Ch. 12.5 - Checkpoint 1
Given that R3 = 25n4, find when n =...Ch. 12.5 - Prob. 2CPCh. 12.5 - Prob. 3CPCh. 12.5 - Prob. 4CPCh. 12.5 - Prob. 5CPCh. 12.5 - Prob. 6CPCh. 12.5 - Prob. 7CPCh. 12.5 - Given that x and y are functions of time, find the...Ch. 12.5 - Given that x and y are functions of time, find the...Ch. 12.5 - Given that x and y are functions of time, find the...Ch. 12.5 - Given that x and y are functions of time, find the...Ch. 12.5 - Prob. 5ECh. 12.5 - Prob. 6ECh. 12.5 - Prob. 7ECh. 12.5 - Prob. 8ECh. 12.5 - Prob. 9ECh. 12.5 - Given that x and y are functions of time, find the...Ch. 12.5 - Work these exercises. (See Examples 1, 3, and 4.)...Ch. 12.5 - Prob. 12ECh. 12.5 - Work these exercises. (See Examples 1, 3, and...Ch. 12.5 - Prob. 14ECh. 12.5 - Prob. 15ECh. 12.5 - Work these exercises. (See Examples 1, 3, and 4.)...Ch. 12.5 - Work these exercises. (See Examples 1, 3, and...Ch. 12.5 - Work these exercises. (See Examples 1, 3, and...Ch. 12.5 - Prob. 25ECh. 12.5 - Prob. 26ECh. 12.5 - Prob. 27ECh. 12.5 - Work these exercises. (See Examples 1, 3, and...Ch. 12.5 - 21. Business An architectural firm must decide on...Ch. 12.5 - 22. Social Science During a six-game hitless slump...Ch. 12.5 - Work these exercises. (See Example...Ch. 12.5 - Work these exercises. (See Example...Ch. 12.5 - Work these exercises.
27. Business The campus...Ch. 12.5 - Work these exercises.
28. Business Following a...Ch. 12.5 - 29. Business During a local political race, the...Ch. 12.5 - Prob. 20ECh. 12.5 - Work these exercises. Electricity from Coal and...Ch. 12.5 - Prob. 22ECh. 12.6 - Prob. 1CPCh. 12.6 - Prob. 2CPCh. 12.6 - Prob. 3CPCh. 12.6 - Prob. 4CPCh. 12.6 - Prob. 1ECh. 12.6 - Sketch the graph of the function. Identify any...Ch. 12.6 - Prob. 3ECh. 12.6 - Prob. 4ECh. 12.6 - Sketch the graph of the function. Identify any...Ch. 12.6 - Prob. 6ECh. 12.6 - Sketch the graph of the function. Identify any...Ch. 12.6 - Prob. 8ECh. 12.6 - Prob. 9ECh. 12.6 - Prob. 10ECh. 12.6 - Prob. 11ECh. 12.6 - Sketch the graph of the function. Identify any...Ch. 12.6 - Prob. 13ECh. 12.6 - Prob. 14ECh. 12.6 - Prob. 15ECh. 12.6 - Prob. 16ECh. 12.6 - Prob. 17ECh. 12.6 - Sketch the graph of the function. Identify any...Ch. 12.6 - Prob. 19ECh. 12.6 - Prob. 20ECh. 12.6 - Prob. 21ECh. 12.6 - Prob. 22ECh. 12.6 - Prob. 23ECh. 12.6 - In Exercises 23–28, sketch the graph of a function...Ch. 12.6 - Prob. 25ECh. 12.6 - In Exercises 23–28, sketch the graph of a function...Ch. 12.6 - In Exercises 23–28, sketch the graph of a function...Ch. 12.6 - In Exercises 23–28, sketch the graph of a function...Ch. 12.6 - 29. Business The accompanying figure shows the...Ch. 12.6 - 30. Refer to the graph in Exercise 29. Which...Ch. 12.6 - Prob. 31ECh. 12.6 - Work these exercises. Average Temperature During...Ch. 12.6 - Prob. 33ECh. 12.6 - Prob. 34ECh. 12.6 - Prob. 35ECh. 12.6 - Prob. 36ECh. 12 - Prob. 1RECh. 12 - Prob. 2RECh. 12 - Prob. 3RECh. 12 - Prob. 4RECh. 12 - Prob. 5RECh. 12 - Prob. 6RECh. 12 - Prob. 7RECh. 12 - Prob. 8RECh. 12 - Prob. 9RECh. 12 - Prob. 10RECh. 12 - Prob. 11RECh. 12 - Prob. 12RECh. 12 - Prob. 13RECh. 12 - Prob. 14RECh. 12 - Prob. 15RECh. 12 - Prob. 16RECh. 12 - Prob. 17RECh. 12 - Prob. 18RECh. 12 - Prob. 19RECh. 12 - Prob. 20RECh. 12 - Prob. 21RECh. 12 - Prob. 22RECh. 12 - Prob. 23RECh. 12 - Prob. 24RECh. 12 - Prob. 25RECh. 12 - Prob. 26RECh. 12 - Prob. 27RECh. 12 - Prob. 28RECh. 12 - Prob. 29RECh. 12 - Prob. 30RECh. 12 - Prob. 31RECh. 12 - Prob. 32RECh. 12 - Prob. 33RECh. 12 - Prob. 34RECh. 12 - Prob. 35RECh. 12 - Prob. 36RECh. 12 - Prob. 37RECh. 12 - Prob. 38RECh. 12 - Prob. 39RECh. 12 - Prob. 40RECh. 12 - Prob. 41RECh. 12 - Prob. 42RECh. 12 - Prob. 43RECh. 12 - Prob. 44RECh. 12 - Prob. 45RECh. 12 - Prob. 46RECh. 12 - Prob. 47RECh. 12 - Prob. 48RECh. 12 - Prob. 49RECh. 12 - Work these exercises. Olympic High Jump The gold...Ch. 12 - Prob. 51RECh. 12 - Prob. 52RECh. 12 - Prob. 53RECh. 12 - Prob. 54RECh. 12 - Prob. 55RECh. 12 - Prob. 56RECh. 12 - Prob. 57RECh. 12 - Prob. 58RECh. 12 - 59. Business A landscaper needs to design an...Ch. 12 - Prob. 60RECh. 12 - Prob. 61RECh. 12 - Prob. 62RECh. 12 - Prob. 63RECh. 12 - 64. Business How many phones need to be produced...Ch. 12 - Prob. 65RECh. 12 - Prob. 66RECh. 12 - Prob. 67RECh. 12 - Prob. 68RECh. 12 - Prob. 69RECh. 12 - Prob. 70RECh. 12 - Prob. 71RECh. 12 - Prob. 72RECh. 12 - Prob. 73RECh. 12 - 74. Social Science A baseball player hits the ball...Ch. 12 - Prob. 1CECh. 12 - Prob. 2CECh. 12 - Prob. 3CECh. 12 - Prob. 4CECh. 12 - Prob. 5CECh. 12 - 6. What is the optimum time interval between...Ch. 12 - A pharmaceutical company is planning to gradually...
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Finding Local Maxima and Minima by Differentiation; Author: Professor Dave Explains;https://www.youtube.com/watch?v=pvLj1s7SOtk;License: Standard YouTube License, CC-BY