PROBABILITY & STATS FOR ENGINEERING &SCI
9th Edition
ISBN: 9781285099804
Author: DEVORE
Publisher: CENGAGE L
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Chapter 12.3, Problem 40E
To determine
Prove that
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solving problem 1
select bmw stock. you can assume the price of the stock
This problem is based on the fundamental option pricing formula for the continuous-time
model developed in class, namely the value at time 0 of an option with maturity T and
payoff F is given by:
We consider the two options below:
Fo=
-rT
= e
Eq[F].
1
A. An option with which you must buy a share of stock at expiration T = 1 for strike
price K = So.
B. An option with which you must buy a share of stock at expiration T = 1 for strike
price K given by
T
K =
T
St dt.
(Note that both options can have negative payoffs.) We use the continuous-time Black-
Scholes model to price these options. Assume that the interest rate on the money market
is r.
(a) Using the fundamental option pricing formula, find the price of option A. (Hint:
use the martingale properties developed in the lectures for the stock price process
in order to calculate the expectations.)
(b) Using the fundamental option pricing formula, find the price of option B.
(c) Assuming the interest rate is very small (r ~0), use Taylor…
Chapter 12 Solutions
PROBABILITY & STATS FOR ENGINEERING &SCI
Ch. 12.1 - The efficiency ratio for a steel specimen immersed...Ch. 12.1 - The article Exhaust Emissions from Four-Stroke...Ch. 12.1 - Bivariate data often arises from the use of two...Ch. 12.1 - The accompanying data on y = ammonium...Ch. 12.1 - The article Objective Measurement of the...Ch. 12.1 - One factor in the development of tennis elbow, a...Ch. 12.1 - The article Some Field Experience in the Use of an...Ch. 12.1 - Referring to Exercise 7, suppose that the standard...Ch. 12.1 - The flow rate y (m3/min) in a device used for...Ch. 12.1 - Suppose the expected cost of a production run is...
Ch. 12.1 - Suppose that in a certain chemical process the...Ch. 12.2 - Refer back to the data in Exercise 4, in which y =...Ch. 12.2 - The accompanying data on y = ammonium...Ch. 12.2 - Refer to the lank temperature-efficiency ratio...Ch. 12.2 - Values of modulus of elasticity (MOE, the ratio of...Ch. 12.2 - The article Characterization of Highway Runoff in...Ch. 12.2 - For the past decade, rubber powder has been used...Ch. 12.2 - For the past decade, rubber powder has been used...Ch. 12.2 - The following data is representative of that...Ch. 12.2 - The bond behavior of reinforcing bars is an...Ch. 12.2 - Wrinkle recovery angle and tensile strength are...Ch. 12.2 - Calcium phosphate cement is gaining increasing...Ch. 12.2 - a. Obtain SSE for the data in Exercise 19 from the...Ch. 12.2 - The invasive diatom species Didymosphenia geminata...Ch. 12.2 - Prob. 25ECh. 12.2 - Show that the point of averages (x,y) lies on the...Ch. 12.2 - Prob. 27ECh. 12.2 - a. Consider the data in Exercise 20. Suppose that...Ch. 12.2 - Consider the following three data sets, in which...Ch. 12.3 - Reconsider the situation described in Exercise 7,...Ch. 12.3 - During oil drilling operations, components of the...Ch. 12.3 - Exercise 16 of Section 12.2 gave data on x =...Ch. 12.3 - During oil drilling operations, components of the...Ch. 12.3 - For the past decade, rubber powder has been used...Ch. 12.3 - Refer back to the data in Exercise 4, in which y =...Ch. 12.3 - Misi (airborne droplets or aerosols) is generated...Ch. 12.3 - Prob. 37ECh. 12.3 - Refer to the data on x = liberation rate and y =...Ch. 12.3 - Carry out the model utility test using the ANOVA...Ch. 12.3 - Prob. 40ECh. 12.3 - Prob. 41ECh. 12.3 - Verify that if each xi is multiplied by a positive...Ch. 12.3 - Prob. 43ECh. 12.4 - Fitting the simple linear regression model to the...Ch. 12.4 - Reconsider the filtration ratemoisture content...Ch. 12.4 - Astringency is the quality in a wine that makes...Ch. 12.4 - The simple linear regression model provides a very...Ch. 12.4 - Prob. 48ECh. 12.4 - You are told that a 95% CI for expected lead...Ch. 12.4 - Prob. 50ECh. 12.4 - Refer to Example 12.12 in which x = test track...Ch. 12.4 - Plasma etching is essential to the fine-line...Ch. 12.4 - Consider the following four intervals based on the...Ch. 12.4 - The height of a patient is useful for a variety of...Ch. 12.4 - Prob. 55ECh. 12.4 - The article Bone Density and Insertion Torque as...Ch. 12.5 - The article Behavioural Effects of Mobile...Ch. 12.5 - The Turbine Oil Oxidation Test (TOST) and the...Ch. 12.5 - Toughness and fibrousness of asparagus are major...Ch. 12.5 - Head movement evaluations are important because...Ch. 12.5 - Prob. 61ECh. 12.5 - Prob. 62ECh. 12.5 - Prob. 63ECh. 12.5 - The accompanying data on x = UV transparency index...Ch. 12.5 - Torsion during hip external rotation and extension...Ch. 12.5 - Prob. 66ECh. 12.5 - Prob. 67ECh. 12 - The appraisal of a warehouse can appear...Ch. 12 - Prob. 69SECh. 12 - Forensic scientists are often interested in making...Ch. 12 - Phenolic compounds are found in the effluents of...Ch. 12 - The SAS output at the bottom of this page is based...Ch. 12 - The presence of hard alloy carbides in high...Ch. 12 - The accompanying data was read from a scatterplot...Ch. 12 - An investigation was carried out to study the...Ch. 12 - Prob. 76SECh. 12 - Open water oil spills can wreak terrible...Ch. 12 - In Section 12.4, we presented a formula for...Ch. 12 - Show that SSE=Syy1Sxy, which gives an alternative...Ch. 12 - Suppose that x and y are positive variables and...Ch. 12 - Let sx and sy denote the sample standard...Ch. 12 - Verify that the t statistic for testing H0: 1 = 0...Ch. 12 - Use the formula for computing SSE to verify that...Ch. 12 - In biofiltration of wastewater, air discharged...Ch. 12 - Normal hatchery processes in aquaculture...Ch. 12 - Prob. 86SECh. 12 - Prob. 87SE
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