EBK EXCURSIONS IN MODERN MATHEMATICS
9th Edition
ISBN: 8220103632034
Author: Tannenbaum
Publisher: PEARSON
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Chapter 13, Problem 49E
To determine
To find:
The value of the variable for which the shaded region is a gnomon.
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In this problem, we consider a 3-period stock market model with evolution given in Fig. 1 below.
Each period corresponds to one year. The interest rate is r = 0%.
16
22
28
12
16
12
8
4
2
time
Figure 1: Stock evolution for Problem 1.
(a) A colleague notices that in the model above, a movement up-down leads to the same value
as a movement down-up. He concludes that the model is a CRR model. Is your colleague
correct? (Explain your answer.)
(b) We consider a European put with strike price K = 10 and expiration T = 3 years. Find
the price of this option at time 0. Provide the replicating portfolio for the first period.
(c) In addition to the call above, we also consider a European call with strike price K = 10
and expiration T = 3 years. Which one has the highest price? (It is not necessary to
provide the price of the call.)
(d) We now assume a yearly interest rate r = 25%. We consider a Bermudan put option with
strike price K = 10. It works like a standard put, but you can exercise it…
In this problem, we consider a 2-period stock market model with evolution given in Fig. 1 below.
Each period corresponds to one year (At = 1). The yearly interest rate is r = 1/3 = 33%. This
model is a CRR model.
25
15
9
10
6
4
time
Figure 1: Stock evolution for Problem 1.
(a) Find the values of up and down factors u and d, and the risk-neutral probability q.
(b) We consider a European put with strike price K
the price of this option at time 0.
==
16 and expiration T = 2 years. Find
(c) Provide the number of shares of stock that the replicating portfolio contains at each pos-
sible position.
(d) You find this option available on the market for $2. What do you do? (Short answer.)
(e) We consider an American put with strike price K
= 16 and expiration T
=
2 years. Find
the price of this option at time 0 and describe the optimal exercising strategy.
(f) We consider an American call with strike price K ○ = 16 and expiration T = 2 years. Find
the price of this option at time 0 and describe…
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Chapter 13 Solutions
EBK EXCURSIONS IN MODERN MATHEMATICS
Ch. 13 - Compute the value of each of the following. a. F15...Ch. 13 - Compute the value of each of the following. a. F16...Ch. 13 - Prob. 3ECh. 13 - Compute the value of each of the following. a....Ch. 13 - Describe in words what each of the expressions...Ch. 13 - Prob. 6ECh. 13 - Given that F36=14,930,352 and F37=24,157,817, a....Ch. 13 - Prob. 8ECh. 13 - Given that F36=14,930,352 and F37=24,157,817,...Ch. 13 - Given that F32=2,178,309 and F33=3,524,578, a.find...
Ch. 13 - Prob. 11ECh. 13 - Using a good calculator an online calculator if...Ch. 13 - Consider the following sequence of equations...Ch. 13 - Consider the following sequence of equations...Ch. 13 - Fact: If we make a list of any four consecutive...Ch. 13 - Fact: If we make a list of any 10 consecutive...Ch. 13 - Express each of the following as a single...Ch. 13 - Prob. 18ECh. 13 - Prob. 19ECh. 13 - Prob. 20ECh. 13 - Prob. 21ECh. 13 - Prob. 22ECh. 13 - Prob. 23ECh. 13 - Prob. 24ECh. 13 - Consider the quadratic equation x2=x+1. a. Use the...Ch. 13 - Prob. 26ECh. 13 - Consider the quadratic equation 3x2=8x+5. a. Use...Ch. 13 - Prob. 28ECh. 13 - Prob. 29ECh. 13 - Prob. 30ECh. 13 - Consider the quadratic equation 21x2=34x+55. a....Ch. 13 - Prob. 32ECh. 13 - Prob. 33ECh. 13 - Consider the quadratic equation (FN2)x2=(FN1)x+FN,...Ch. 13 - The reciprocal of =1+52 is the rational number...Ch. 13 - The square of the golden ratio is the irrational...Ch. 13 - Given that F4998.61710103, a. find an approximate...Ch. 13 - Prob. 38ECh. 13 - Prob. 39ECh. 13 - Prob. 40ECh. 13 - Prob. 41ECh. 13 - Prob. 42ECh. 13 - Triangles T and T shown in Fig. 13-23 are similar...Ch. 13 - Polygons P and P shown in Fig. 13-24 are similar...Ch. 13 - Find the value of x so that the shaded rectangle...Ch. 13 - Find the value of x so that the shaded figure in...Ch. 13 - Prob. 47ECh. 13 - Prob. 48ECh. 13 - Prob. 49ECh. 13 - Prob. 50ECh. 13 - In Fig. 13-31 triangles BCA is a 36-36-108...Ch. 13 - Prob. 52ECh. 13 - Find the value of x of y so that in Fig. 13-33 the...Ch. 13 - Prob. 54ECh. 13 - Prob. 55ECh. 13 - Consider the sequence of ratios FN2FN. a. Using a...Ch. 13 - Prob. 57ECh. 13 - Prob. 58ECh. 13 - Prob. 59ECh. 13 - a.Explain what happens to the values of (152)N as...Ch. 13 - Prob. 61ECh. 13 - Prob. 62ECh. 13 - Prob. 63ECh. 13 - Prob. 64ECh. 13 - Prob. 65ECh. 13 - Find the value of x of y so that in Fig. 13-37 the...Ch. 13 - Prob. 67ECh. 13 - In Fig. 13-39 triangle BCD is a 727236 triangle...Ch. 13 - Prob. 69ECh. 13 - Prob. 70ECh. 13 - Prob. 71ECh. 13 - Prob. 72ECh. 13 - Prob. 73ECh. 13 - Prob. 74ECh. 13 - Prob. 75ECh. 13 - Prob. 76ECh. 13 - During the time of the Greeks the star pentagram...
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