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 15, Problem 9E
a.
To determine
State the null and alternative hypothesis.
b.
To determine
Check whether the course is effective or not.
c.
To determine
Justify about the mean difference in the scores.
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Question 2. An American option on a stock has payoff given by F = f(St) when it is exercised
at time t. We know that the function f is convex. A person claims that because of convexity,
it is optimal to exercise at expiration T. Do you agree with them?
Question 4. We consider a CRR model with So == 5 and up and down factors u = 1.03 and
d = 0.96. We consider the interest rate r = 4% (over one period). Is this a suitable CRR
model? (Explain your answer.)
Question 3. We want to price a put option with strike price K and expiration T. Two financial
advisors estimate the parameters with two different statistical methods: they obtain the same
return rate μ, the same volatility σ, but the first advisor has interest r₁ and the second advisor
has interest rate r2 (r1>r2). They both use a CRR model with the same number of periods to
price the option. Which advisor will get the larger price? (Explain your answer.)
Chapter 15 Solutions
Intro Stats, Books a la Carte Edition (5th Edition)
Ch. 15.2 - A research team wants to know if aspirin helps to...Ch. 15.2 - An allergy drug has been tested and found to give...Ch. 15.2 - The new drug is tested and the P-value is 0.0001....Ch. 15.4 - The research team that wants to know if aspirin...Ch. 15.4 - Prob. 5JCCh. 15.6 - Prob. 6JCCh. 15.6 - Prob. 7JCCh. 15.6 - Prob. 8JCCh. 15 - Better than aspirin? A very large study showed...Ch. 15 - Psychic A friend of yours claims to be psychic....
Ch. 15 - Parameters and hypotheses For each of the...Ch. 15 - Hypotheses and parameters As in Exercise 3, for...Ch. 15 - SECTION 15.2 5. Better than aspirin again?...Ch. 15 - GRE performance A test preparation company claims...Ch. 15 - SECTION 15.3 7. Hispanic origin According to the...Ch. 15 - Empty houses According to the 2010 Census, 11.4%...Ch. 15 - Prob. 9ECh. 15 - Marriage In 1960, census results indicated that...Ch. 15 - Prob. 11ECh. 15 - Golf balls The United States Golf Association...Ch. 15 - Prob. 13ECh. 15 - Prob. 14ECh. 15 - CHAPTER EXERCISES 15. Hypotheses Write the null...Ch. 15 - More hypotheses Write the null and alternative...Ch. 15 - Negatives After the political ad campaign...Ch. 15 - Dice The seller of a loaded die claims that it...Ch. 15 - Prob. 19ECh. 15 - Cars A survey investigating whether the proportion...Ch. 15 - Prob. 21ECh. 15 - Prob. 22ECh. 15 - Prob. 23ECh. 15 - Prob. 24ECh. 15 - Dowsing In a rural area, only about 30% of the...Ch. 15 - Abnormalities In the 1980s, it was generally...Ch. 15 - Prob. 27ECh. 15 - Educated mothers The National Center for Education...Ch. 15 - Contributions, please II We learned in Chapter 13,...Ch. 15 - Prob. 30ECh. 15 - Prob. 31ECh. 15 - Scratch and dent An appliance manufacturer...Ch. 15 - Prob. 33ECh. 15 - Football 2016 During the first 15 weeks of the...Ch. 15 - WebZine A magazine is considering the launch of an...Ch. 15 - Seeds A garden center wants to store leftover...Ch. 15 - Prob. 37ECh. 15 - Prob. 38ECh. 15 - Prob. 39ECh. 15 - Acid rain A study of the effects of acid rain on...Ch. 15 - Prob. 41ECh. 15 - TV ads A start-up company is about to market a new...Ch. 15 - Prob. 43ECh. 15 - Prob. 44ECh. 15 - Normal temperature again From the measurements of...Ch. 15 - Hot dogs again The nutrition lab in Chapter 14,...Ch. 15 - Prob. 47ECh. 15 - Computer lab fees again The technology committee...Ch. 15 - More Ruffles Recall from Chapter 14, Exercise 55...Ch. 15 - More Doritos We saw in Chapter 14, Exercise 56...Ch. 15 - Prob. 51ECh. 15 - Prob. 52ECh. 15 - Prob. 53ECh. 15 - Prob. 54ECh. 15 - Maze Here are the data from the researcher...Ch. 15 - Facebook friends According to...Ch. 15 - Maze revisited A student resampled the Maze times...Ch. 15 - Prob. 58ECh. 15 - Prob. 59ECh. 15 - Prob. 60E
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- We consider an N-period CRR model where each period is 1 year (At = 1), the up factor is u = 0.1, the down factor is d = e−0.3 and r = 0. We remind you that in the CRR model, the stock price at time tn is modeled (under P) by Sta = So exp (μtn + σ√AtZn), where (Zn) is a simple symmetric random walk. (a) Find the parameters μ and σ for the CRR model described above. (b) Find P Ste So 55/50 € > 1). StN (c) Find lim P 804-N (d) Determine q. (You can use e- 1 x.) Ste (e) Find Q So (f) Find lim Q 004-N StN Soarrow_forwardIn 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…arrow_forwardIn 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…arrow_forward
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