Mathematical Statistics with Applications
7th Edition
ISBN: 9780495110811
Author: Dennis Wackerly, William Mendenhall, Richard L. Scheaffer
Publisher: Cengage Learning
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Chapter 15.9, Problem 46E
a.
To determine
Find the value of
b.
To determine
Find the value of
c.
To determine
Find the value of
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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 15 Solutions
Mathematical Statistics with Applications
Ch. 15.3 - What significance levels between = .01 and = .15...Ch. 15.3 - Prob. 2ECh. 15.3 - Clinical data concerning the effectiveness of two...Ch. 15.3 - Prob. 4ECh. 15.3 - New food products are frequently subjected to...Ch. 15.3 - On clear, cold nights in the central Florida...Ch. 15.3 - A psychological experiment was conducted to...Ch. 15.3 - Refer to Exercise 12.15. Using the sign test, do...Ch. 15.3 - Prob. 9ECh. 15.4 - The accompanying table gives the scores of a group...
Ch. 15.4 - Refer to Exercise 15.4. What answers are obtained...Ch. 15.4 - Refer to Exercise 15.6(a). Answer the question by...Ch. 15.4 - Eight subjects were asked to perform a simple...Ch. 15.4 - Two methods, A and B, for controlling traffic were...Ch. 15.4 - Dental researchers have developed a new material...Ch. 15.4 - Refer to Exercise 12.16. With = .01, use the...Ch. 15.4 - Suppose that Y1, Y2,, Yn is a random sample from a...Ch. 15.4 - The spokesperson for an organization supporting...Ch. 15.6 - Find the p-values associated with each of the...Ch. 15.6 - In some tests of healthy, elderly men, a new drug...Ch. 15.6 - Two plastics, each produced by a different...Ch. 15.6 - Prob. 24ECh. 15.6 - Prob. 25ECh. 15.6 - Prob. 26ECh. 15.6 - Prob. 27ECh. 15.6 - Prob. 28ECh. 15.7 - The table that follows contains data on the leaf...Ch. 15.7 - Prob. 30ECh. 15.7 - Three different brands of magnetron tubes (the key...Ch. 15.7 - An experiment was conducted to compare the length...Ch. 15.7 - Prob. 33ECh. 15.7 - Prob. 34ECh. 15.7 - Prob. 35ECh. 15.8 - In a study of palatability of antibiotics for...Ch. 15.8 - Prob. 38ECh. 15.8 - Prob. 39ECh. 15.8 - A serious drought-related problem for farmers is...Ch. 15.8 - Prob. 41ECh. 15.8 - Prob. 42ECh. 15.8 - Prob. 43ECh. 15.8 - Prob. 44ECh. 15.8 - Prob. 45ECh. 15.9 - Prob. 46ECh. 15.9 - Prob. 47ECh. 15.9 - Prob. 48ECh. 15.9 - Prob. 49ECh. 15.9 - Prob. 50ECh. 15.9 - Prob. 52ECh. 15.10 - Prob. 53ECh. 15.10 - Prob. 54ECh. 15.10 - Prob. 55ECh. 15.10 - Prob. 56ECh. 15.10 - Prob. 57ECh. 15.10 - Prob. 58ECh. 15.10 - Refer to Exercise 11.4. Regard both book and...Ch. 15.10 - Prob. 60ECh. 15 - Prob. 62SECh. 15 - Prob. 63SECh. 15 - Prob. 64SECh. 15 - Prob. 65SECh. 15 - Prob. 67SECh. 15 - Prob. 69SECh. 15 - Prob. 70SECh. 15 - Prob. 71SECh. 15 - Prob. 72SECh. 15 - Prob. 74SECh. 15 - Prob. 75SECh. 15 - Prob. 76SECh. 15 - Prob. 77SECh. 15 - Prob. 78SE
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