STATS:DATA+MODELS-MY LAB ACC >CUSTOM<
21st Edition
ISBN: 9780137643127
Author: DeVeaux
Publisher: PEARSON
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Chapter 13, Problem 21E
a.
To determine
Find the
b.
To determine
Find the probability that the selected card is red given that it is a heart.
c.
To determine
Find the probability that the selected card is an ace given that it is red.
d.
To determine
Find the probability that the selected card is a queen given that it is a face card.
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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
STATS:DATA+MODELS-MY LAB ACC >CUSTOM<
Ch. 13.1 - 1. Back in Chapter 1, we suggested that you sample...Ch. 13.3 - JUST CHECKING
4. The American Association for...Ch. 13.4 - JUST CHECKING
5. Remember our sample of pages in...Ch. 13 - Prob. 1ECh. 13 - Cooking and shopping Forty-five percent of...Ch. 13 - Sports What is the probability that a person likes...Ch. 13 - Sports again From Exercise 3, if someone doesn’t...Ch. 13 - Late to the train A student figures that he has a...Ch. 13 - Field goals A nervous kicker usually makes 70% of...Ch. 13 - Titanic On the Titanic, the probability of...
Ch. 13 - Births If the sex of a child is independent of all...Ch. 13 - Facebook Facebook reports that 70% of its users...Ch. 13 - Online banking A national survey indicated that...Ch. 13 - Facebook again Suppose that the information in...Ch. 13 - Online banking again Suppose that the information...Ch. 13 - Facebook final Given the probabilities in Exercise...Ch. 13 - Online banking last time Given the probabilities...Ch. 13 - Phones Recent research suggests that 73% of...Ch. 13 - Travel Suppose the probability that a U.S....Ch. 13 - Amenities A check of dorm rooms on a large college...Ch. 13 - Workers Employment data at a large company reveal...Ch. 13 - Global survey The marketing research organization...Ch. 13 - Birth order A survey of students in a large...Ch. 13 - 21. Cards You draw a card at random front a...Ch. 13 - Pets In its monthly report, the local animal...Ch. 13 - 59. Health The probabilities that an adult...Ch. 13 - 60. Immigration The table shows the political...Ch. 13 - 25. Global survey, take 2 Look again at the table...Ch. 13 - 26. Birth order, take 2 Look again at the data...Ch. 13 - Sick kids Seventy percent of kids who visit a...Ch. 13 - Sick cars Twenty percent of cars that are...Ch. 13 - 29. Cards You are dealt a hand of three cards, one...Ch. 13 - 30. Another hand You pick three cards at random...Ch. 13 - 63. Batteries A junk box in your room contains a...Ch. 13 - 64. Shirts The soccer team’s shirts have arrived...Ch. 13 - 65. Eligibility A university requires its biology...Ch. 13 - 66. Benefits Fifty-six percent of all American...Ch. 13 - 35. Cell phones in the home A survey found that...Ch. 13 - Prob. 36ECh. 13 - Prob. 37ECh. 13 - Prob. 38ECh. 13 - Prob. 39ECh. 13 - 40. Birth order, finis In Exercises 20 and 26, we...Ch. 13 - Prob. 41ECh. 13 - Prob. 42ECh. 13 - Prob. 43ECh. 13 - Prob. 44ECh. 13 - Prob. 45ECh. 13 - Prob. 46ECh. 13 - Prob. 47ECh. 13 - Prob. 48ECh. 13 - Prob. 49ECh. 13 - Prob. 50ECh. 13 - Prob. 51ECh. 13 - Prob. 52ECh. 13 - Prob. 53ECh. 13 - Prob. 54ECh. 13 - Prob. 55ECh. 13 - 82. No-shows An airline offers discounted...Ch. 13 - Prob. 57ECh. 13 - Prob. 58ECh. 13 - Prob. 59E
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