Probability and Statistics for Engineering and the Sciences
9th Edition
ISBN: 9781305251809
Author: Jay L. Devore
Publisher: Cengage Learning
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Textbook Question
Chapter 13.2, Problem 15E
No tortilla chip aficionado likes soggy chips, so it is important to find characteristics of the production process that produce chips with an appealing texture. The following data on x = frying time (sec) and y = moisture content (%) appeared in the article “Thermal and Physical Properties of Tortilla Chips as a
| x | 5 | 10 | 15 | 20 | 25 | 30 | 45 | 60 |
| y | 16.3 | 9.7 | 8.1 | 4.2 | 3.4 | 2.9 | 1.9 | 1.3 |
a. Construct a
b. Construct a scatterplot of the (ln(x), ln(y)) pairs and comment.
c. What probabilistic relationship between x and y is suggested by the linear pattern in the plot of part (b)?
d. Predict the value of moisture content when frying time is 20, in a way that conveys information about reliability and precision.
e. Analyze the residuals from fitting the simple linear regression model to the transformed data and comment.
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Students have asked these similar questions
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.)
Problem 4. Margrabe formula and the Greeks (20 pts)
In the homework, we determined the Margrabe formula for the price of an option allowing you to
swap an x-stock for a y-stock at time T. For stocks with initial values xo, yo, common volatility
σ and correlation p, the formula was given by
Fo=yo (d+)-x0Þ(d_),
where
In (±²
Ꭲ
d+
õ√T
and
σ = σ√√√2(1 - p).
дго
(a) We want to determine a "Greek" for ỡ on the option: find a formula for
θα
(b) Is
дго
θα
positive or negative?
(c) We consider a situation in which the correlation p between the two stocks increases: what
can you say about the price Fo?
(d) Assume that yo< xo and p = 1. What is the price of the option?
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
Chapter 13 Solutions
Probability and Statistics for Engineering and the Sciences
Ch. 13.1 - Suppose the variables x = commuting distance and y...Ch. 13.1 - Prob. 2ECh. 13.1 - Prob. 3ECh. 13.1 - Prob. 4ECh. 13.1 - As the air temperature drops, river water becomes...Ch. 13.1 - The accompanying scatterplot is based on data...Ch. 13.1 - Prob. 7ECh. 13.1 - Prob. 8ECh. 13.1 - Consider the following four (x, y) data sets; the...Ch. 13.1 - a. Show that i=1nei=0 when the eis are the...
Ch. 13.1 - Prob. 11ECh. 13.1 - Prob. 12ECh. 13.1 - Prob. 13ECh. 13.1 - If there is at least one x value at which more...Ch. 13.2 - No tortilla chip aficionado likes soggy chips, so...Ch. 13.2 - Polyester fiber ropes are increasingly being used...Ch. 13.2 - The following data on mass rate of burning x and...Ch. 13.2 - Failures in aircraft gas turbine engines due to...Ch. 13.2 - Prob. 19ECh. 13.2 - Prob. 20ECh. 13.2 - Mineral mining is one of the most important...Ch. 13.2 - Prob. 22ECh. 13.2 - Prob. 23ECh. 13.2 - Kyphosis refers to severe forward flexion of the...Ch. 13.2 - Prob. 25ECh. 13.3 - The following data on y 5 glucose concentration...Ch. 13.3 - The viscosity (y) of an oil was measured by a cone...Ch. 13.3 - Prob. 29ECh. 13.3 - The accompanying data was extracted from the...Ch. 13.3 - The accompanying data on y 5 energy output (W) and...Ch. 13.3 - Prob. 32ECh. 13.3 - Prob. 33ECh. 13.3 - The following data resulted from an experiment to...Ch. 13.3 - The article The Respiration in Air and in Water of...Ch. 13.4 - Cardiorespiratory fitness is widely recognized as...Ch. 13.4 - A trucking company considered a multiple...Ch. 13.4 - Let y = wear life of a bearing, x1 = oil...Ch. 13.4 - Let y = sales at a fast-food outlet (1000s of ),...Ch. 13.4 - The article cited in Exercise 49 of Chapter 7 gave...Ch. 13.4 - The article A Study of Factors Affecting the Human...Ch. 13.4 - An investigation of a die-casting process resulted...Ch. 13.4 - Prob. 43ECh. 13.4 - The accompanying Minitab regression output is...Ch. 13.4 - The article Analysis of the Modeling Methodologies...Ch. 13.4 - A regression analysis carried out to relate y =...Ch. 13.4 - Efficient design of certain types of municipal...Ch. 13.4 - An experiment to investigate the effects of a new...Ch. 13.4 - Prob. 49ECh. 13.4 - Prob. 50ECh. 13.4 - The article Optimization of Surface Roughness in...Ch. 13.4 - Utilization of sucrose as a carbon source for the...Ch. 13.4 - Prob. 53ECh. 13.4 - Prob. 54ECh. 13.5 - The article The Influence of Honing Process...Ch. 13.5 - Prob. 56ECh. 13.5 - In the accompanying table, we give the smallest...Ch. 13.5 - Prob. 58ECh. 13.5 - Prob. 59ECh. 13.5 - Pillar stability is a most important factor to...Ch. 13.5 - Prob. 61ECh. 13.5 - Prob. 62ECh. 13.5 - Prob. 63ECh. 13.5 - Prob. 64ECh. 13 - Curing concrete is known to be vulnerable to shock...Ch. 13 - Prob. 66SECh. 13 - The article Validation of the Rockport Fitness...Ch. 13 - Feature recognition from surface models of...Ch. 13 - Air pressure (psi) and temperature (F) were...Ch. 13 - An aeronautical engineering student carried out an...Ch. 13 - An ammonia bath is the one most widely used for...Ch. 13 - The article An Experimental Study of Resistance...Ch. 13 - The accompanying data on x = frequency (MHz) and y...Ch. 13 - Prob. 74SECh. 13 - Prob. 75SECh. 13 - The article Chemithermomechanical Pulp from Mixed...Ch. 13 - Prob. 77SECh. 13 - Prob. 78SECh. 13 - Prob. 79SECh. 13 - Prob. 80SECh. 13 - Prob. 81SECh. 13 - Prob. 82SECh. 13 - Prob. 83SE
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