Intro Stats, Books a la Carte Edition (5th Edition)
5th Edition
ISBN: 9780134210285
Author: Richard D. De Veaux, Paul Velleman, David E. Bock
Publisher: PEARSON
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Chapter 13, Problem 10E
Character recognition, again The automatic character recognition device discussed in Exercise 4 successfully reads about 85% of handwritten credit card applications. In Exercise 4, you looked at the histograms showing distributions of sample proportions from 1000 simulated samples of size 20, 50, 75, and 100. The sample statistics and theoretical values for each simulation are as follows:
- a) Looking at the histograms in Exercise 4, at what
sample size would you be comfortable using the Normal model as an approximation for the sampling distribution? - b) What does the Success/Failure Condition say about the choice you made in part a?
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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.)
Chapter 13 Solutions
Intro Stats, Books a la Carte Edition (5th Edition)
Ch. 13.2 - You want to poll a random sample of 100 students...Ch. 13.2 - Prob. 2JCCh. 13.2 - If you think that about half the students are in...Ch. 13.3 - A Pew Research study regarding cell phones asked...Ch. 13.3 - Prob. 5JCCh. 13.3 - A Pew Research study regarding cell phones asked...Ch. 13.3 - Prob. 7JCCh. 13.3 - Prob. 8JCCh. 13.5 - Prob. 9JCCh. 13.5 - Prob. 10JC
Ch. 13.5 - Prob. 11JCCh. 13 - Website An investment company is planning to...Ch. 13 - Marketing The proportion of adult women in the...Ch. 13 - Prob. 3ECh. 13 - Character recognition An automatic character...Ch. 13 - Prob. 5ECh. 13 - Hows life? Gallup regularly conducts a poll using...Ch. 13 - Prob. 7ECh. 13 - Prob. 8ECh. 13 - Send more money The philanthropic organization in...Ch. 13 - Character recognition, again The automatic...Ch. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Spanking In a 2015 Pew Research study on trends in...Ch. 13 - Prob. 15ECh. 13 - Smoking The Gallup poll described in Exercise 6...Ch. 13 - Prob. 17ECh. 13 - Prob. 18ECh. 13 - Graduation Its believed that as many as 25% of...Ch. 13 - Hiring In preparing a report on the economy, we...Ch. 13 - Margin of error A TV newscaster reports the...Ch. 13 - Another margin of error A medical researcher...Ch. 13 - Conditions For each situation described below,...Ch. 13 - More conditions Consider each situation described....Ch. 13 - Conclusions A catalog sales company promises to...Ch. 13 - More conclusions In January 2002, two students...Ch. 13 - Confidence intervals Several factors are involved...Ch. 13 - Confidence intervals, again Several factors are...Ch. 13 - Cars What fraction of cars made in Japan? The...Ch. 13 - Prob. 30ECh. 13 - Mislabeled seafood In 2013 the environmental group...Ch. 13 - Mislabeled seafood, second course A Consumer...Ch. 13 - Prob. 33ECh. 13 - Prob. 34ECh. 13 - Prob. 35ECh. 13 - Take the offer First USA, a major credit card...Ch. 13 - Teenage drivers An insurance company checks police...Ch. 13 - Junk mail Direct mail advertisers send...Ch. 13 - Prob. 39ECh. 13 - Prob. 40ECh. 13 - Prob. 41ECh. 13 - Gambling A city ballot includes a local initiative...Ch. 13 - Rickets Vitamin D, whether ingested as a dietary...Ch. 13 - Teachers A 2011 Gallup poll found that 76% of...Ch. 13 - Prob. 45ECh. 13 - Back to campus ACT, Inc. reported that 74% of 1644...Ch. 13 - Deer ticks Wildlife biologists inspect 153 deer...Ch. 13 - Prob. 48ECh. 13 - Graduation, again As in Exercise 19, we hope to...Ch. 13 - Better hiring info Editors of the business report...Ch. 13 - Prob. 51ECh. 13 - Another pilot study During routine screening, a...Ch. 13 - Prob. 53ECh. 13 - Amendment A TV news reporter says that a proposed...
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