EP ELEMENTARY STAT.USING EXC.-MYSTATLAB
7th Edition
ISBN: 9780136961888
Author: Triola
Publisher: PEARSON CO
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Chapter 14.1, Problem 8BSC
To determine
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Explain what does the results suggest.
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Question 1: Determine and interpret the correlation coefficient between the two variables. In your interpretation, discuss the direction of the relationship (positive, negative, or zero relationship). Also discuss the strength of the relationship.
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Strength of the relationship (strong/moderate/weak):
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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 14 Solutions
EP ELEMENTARY STAT.USING EXC.-MYSTATLAB
Ch. 14.1 - Prob. 5BSCCh. 14.1 - Prob. 6BSCCh. 14.1 - Prob. 7BSCCh. 14.1 - Prob. 8BSCCh. 14.1 - Prob. 9BSCCh. 14.1 - Prob. 10BSCCh. 14.1 - Prob. 11BSCCh. 14.1 - Prob. 12BSCCh. 14.1 - Prob. 13BBCh. 14.1 - Prob. 14BB
Ch. 14.2 - Prob. 1BSCCh. 14.2 - Prob. 2BSCCh. 14.2 - Prob. 3BSCCh. 14.2 - Prob. 4BSCCh. 14.2 - Prob. 5BSCCh. 14.2 - Prob. 6BSCCh. 14.2 - Prob. 7BSCCh. 14.2 - Prob. 8BSCCh. 14.2 - Control Charts for p. In Exercises 5-12, use the...Ch. 14.2 - Prob. 10BSCCh. 14.2 - Prob. 13BBCh. 14 - Prob. 1CQQCh. 14 - 2. What is the difference between random variation...Ch. 14 - Prob. 3CQQCh. 14 - Prob. 4CQQCh. 14 - Prob. 5CQQCh. 14 - Prob. 6CQQCh. 14 - Prob. 7CQQCh. 14 - Prob. 8CQQCh. 14 - Prob. 9CQQCh. 14 - Prob. 10CQQCh. 14 - Prob. 1RECh. 14 - Prob. 2RECh. 14 - Prob. 3RECh. 14 - Prob. 4RECh. 14 - Prob. 5RECh. 14 - Prob. 7CRECh. 14 - Prob. 8CRECh. 14 - Prob. 9CRECh. 14 - Prob. 1FDD
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