Nature of Mathematics (MindTap Course List)
13th Edition
ISBN: 9781133947257
Author: karl J. smith
Publisher: Cengage Learning
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Chapter 18.4, Problem 1PS
To determine
To evaluate:
The area function for the function
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Question 1. Your manager asks you to explain why the Black-Scholes model may be inappro-
priate for pricing options in practice. Give one reason that would substantiate this claim?
Question 2. We consider stock #1 and stock #2 in the model of Problem 2. Your manager
asks you to pick only one of them to invest in based on the model provided. Which one do you
choose and why ?
Question 3. Let (St) to be an asset modeled by the Black-Scholes SDE. Let Ft be the price
at time t of a European put with maturity T and strike price K. Then, the discounted option
price process (ert Ft) t20 is a martingale. True or False? (Explain your answer.)
Question 4. You are considering pricing an American put option using a Black-Scholes model
for the underlying stock. An explicit formula for the price doesn't exist. In just a few words (no
more than 2 sentences), explain how you would proceed to price it.
Question 5. We model a short rate with a Ho-Lee model drt = ln(1+t) dt +2dWt. Then the
interest rate…
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.)
3. Consider the polynomial equation 6-iz+7z² - iz³ +z = 0 for which the roots are 3i, -2i, -i,
and i.
(a) Verify the relations between this roots and the coefficients of the polynomial.
(b) Find the annulus region in which the roots lie.
Chapter 18 Solutions
Nature of Mathematics (MindTap Course List)
Ch. 18.1 - IN YOUR OWN WORDS What are the three main topics...Ch. 18.1 - Prob. 2PSCh. 18.1 - Prob. 3PSCh. 18.1 - IN YOUR OWN WORDS Zenos paradoxes remind us of an...Ch. 18.1 - Prob. 5PSCh. 18.1 - Consider the sequence 0.4, 0.44, 0.444, 0.4444,,...Ch. 18.1 - Consider the sequence 0.5,0.55,0.555,0.5555,, What...Ch. 18.1 - Consider the sequence 6, 6.6, 6.66, 6.666,, What...Ch. 18.1 - Prob. 9PSCh. 18.1 - Consider the sequence 0.27, 0.2727, 0.272727,,...
Ch. 18.1 - Prob. 11PSCh. 18.1 - Consider the sequence...Ch. 18.1 - Prob. 13PSCh. 18.1 - Prob. 14PSCh. 18.1 - Prob. 15PSCh. 18.1 - Prob. 16PSCh. 18.1 - Prob. 17PSCh. 18.1 - Prob. 18PSCh. 18.1 - Prob. 19PSCh. 18.1 - Prob. 20PSCh. 18.1 - Prob. 21PSCh. 18.1 - Prob. 22PSCh. 18.1 - In Problems 21-38, guess the requested limits....Ch. 18.1 - Prob. 24PSCh. 18.1 - Prob. 25PSCh. 18.1 - Prob. 26PSCh. 18.1 - In Problems 21-38, guess the requested limits....Ch. 18.1 - Prob. 28PSCh. 18.1 - Prob. 29PSCh. 18.1 - Prob. 30PSCh. 18.1 - Prob. 31PSCh. 18.1 - Prob. 32PSCh. 18.1 - Prob. 33PSCh. 18.1 - Prob. 34PSCh. 18.1 - Prob. 35PSCh. 18.1 - Prob. 36PSCh. 18.1 - Prob. 37PSCh. 18.1 - Prob. 38PSCh. 18.1 - Prob. 39PSCh. 18.1 - Prob. 40PSCh. 18.1 - Prob. 41PSCh. 18.1 - Prob. 42PSCh. 18.1 - Prob. 43PSCh. 18.1 - Prob. 44PSCh. 18.1 - Prob. 45PSCh. 18.1 - Prob. 46PSCh. 18.1 - Prob. 47PSCh. 18.1 - Prob. 48PSCh. 18.1 - Prob. 49PSCh. 18.1 - Prob. 50PSCh. 18.1 - Prob. 51PSCh. 18.1 - Prob. 52PSCh. 18.1 - Prob. 53PSCh. 18.1 - Prob. 54PSCh. 18.1 - Prob. 55PSCh. 18.1 - Prob. 56PSCh. 18.1 - Prob. 57PSCh. 18.1 - Prob. 58PSCh. 18.1 - Prob. 59PSCh. 18.1 - Prob. 60PSCh. 18.2 - IN YOUR OWN WORDS What do we mean by the limit of...Ch. 18.2 - Prob. 2PSCh. 18.2 - Prob. 3PSCh. 18.2 - Prob. 4PSCh. 18.2 - Prob. 5PSCh. 18.2 - Prob. 6PSCh. 18.2 - Prob. 7PSCh. 18.2 - Prob. 8PSCh. 18.2 - Prob. 9PSCh. 18.2 - Prob. 10PSCh. 18.2 - Prob. 11PSCh. 18.2 - Prob. 12PSCh. 18.2 - Prob. 13PSCh. 18.2 - Prob. 14PSCh. 18.2 - Prob. 15PSCh. 18.2 - Find each limit in Problems 11-18, if it exists....Ch. 18.2 - Prob. 17PSCh. 18.2 - Prob. 18PSCh. 18.2 - Prob. 19PSCh. 18.2 - Prob. 20PSCh. 18.2 - Prob. 21PSCh. 18.2 - Prob. 22PSCh. 18.2 - Prob. 23PSCh. 18.2 - Prob. 24PSCh. 18.2 - Prob. 25PSCh. 18.2 - Prob. 26PSCh. 18.2 - Prob. 27PSCh. 18.2 - Graph each sequence in the Problems 27-34 in one...Ch. 18.2 - Prob. 29PSCh. 18.2 - Graph each sequence in the Problems 27-34 in one...Ch. 18.2 - Prob. 31PSCh. 18.2 - Prob. 32PSCh. 18.2 - Prob. 33PSCh. 18.2 - Graph each sequence in Problems 27-34 in one...Ch. 18.2 - Prob. 35PSCh. 18.2 - Prob. 36PSCh. 18.2 - Prob. 37PSCh. 18.2 - Prob. 38PSCh. 18.2 - Prob. 39PSCh. 18.2 - Prob. 40PSCh. 18.2 - Prob. 41PSCh. 18.2 - Prob. 42PSCh. 18.2 - Prob. 43PSCh. 18.2 - Prob. 44PSCh. 18.2 - Prob. 45PSCh. 18.2 - Prob. 46PSCh. 18.2 - Find the limit if it exists as n for each of the...Ch. 18.2 - Find the limit if it exists as n for each of the...Ch. 18.2 - Prob. 49PSCh. 18.2 - Find the limit if it exists as n for each of the...Ch. 18.2 - Prob. 51PSCh. 18.2 - Prob. 52PSCh. 18.2 - Prob. 53PSCh. 18.2 - Prob. 54PSCh. 18.2 - Prob. 55PSCh. 18.2 - Prob. 56PSCh. 18.2 - Prob. 57PSCh. 18.2 - Prob. 58PSCh. 18.2 - Prob. 59PSCh. 18.2 - Prob. 60PSCh. 18.3 - Prob. 1PSCh. 18.3 - Prob. 2PSCh. 18.3 - Prob. 3PSCh. 18.3 - Prob. 4PSCh. 18.3 - Prob. 5PSCh. 18.3 - Prob. 6PSCh. 18.3 - Prob. 7PSCh. 18.3 - Prob. 8PSCh. 18.3 - Prob. 9PSCh. 18.3 - Prob. 10PSCh. 18.3 - Prob. 11PSCh. 18.3 - Prob. 12PSCh. 18.3 - Prob. 13PSCh. 18.3 - Prob. 14PSCh. 18.3 - Prob. 15PSCh. 18.3 - Prob. 16PSCh. 18.3 - Prob. 17PSCh. 18.3 - Prob. 18PSCh. 18.3 - Prob. 19PSCh. 18.3 - Prob. 20PSCh. 18.3 - Prob. 21PSCh. 18.3 - Prob. 22PSCh. 18.3 - Prob. 23PSCh. 18.3 - Prob. 24PSCh. 18.3 - Prob. 25PSCh. 18.3 - Prob. 26PSCh. 18.3 - Prob. 27PSCh. 18.3 - Prob. 28PSCh. 18.3 - Prob. 29PSCh. 18.3 - Prob. 30PSCh. 18.3 - Prob. 31PSCh. 18.3 - Prob. 32PSCh. 18.3 - Prob. 33PSCh. 18.3 - Prob. 34PSCh. 18.3 - Prob. 35PSCh. 18.3 - Prob. 36PSCh. 18.3 - Prob. 37PSCh. 18.3 - Prob. 38PSCh. 18.3 - Prob. 39PSCh. 18.3 - Prob. 40PSCh. 18.3 - Prob. 41PSCh. 18.3 - Prob. 42PSCh. 18.3 - Prob. 43PSCh. 18.3 - Prob. 44PSCh. 18.3 - Prob. 45PSCh. 18.3 - Prob. 46PSCh. 18.3 - Prob. 47PSCh. 18.3 - Prob. 48PSCh. 18.3 - Prob. 49PSCh. 18.3 - Prob. 50PSCh. 18.3 - Prob. 51PSCh. 18.3 - Prob. 52PSCh. 18.3 - Prob. 53PSCh. 18.3 - Prob. 54PSCh. 18.3 - Prob. 55PSCh. 18.3 - Prob. 56PSCh. 18.3 - Prob. 57PSCh. 18.3 - Prob. 58PSCh. 18.3 - Prob. 59PSCh. 18.3 - Prob. 60PSCh. 18.4 - Prob. 1PSCh. 18.4 - Prob. 2PSCh. 18.4 - Prob. 3PSCh. 18.4 - Prob. 4PSCh. 18.4 - Prob. 5PSCh. 18.4 - Prob. 6PSCh. 18.4 - Prob. 7PSCh. 18.4 - Prob. 8PSCh. 18.4 - Prob. 9PSCh. 18.4 - Prob. 10PSCh. 18.4 - Prob. 11PSCh. 18.4 - Prob. 12PSCh. 18.4 - Prob. 13PSCh. 18.4 - Prob. 14PSCh. 18.4 - Prob. 15PSCh. 18.4 - Prob. 16PSCh. 18.4 - Prob. 17PSCh. 18.4 - Prob. 18PSCh. 18.4 - Prob. 19PSCh. 18.4 - Prob. 20PSCh. 18.4 - Prob. 21PSCh. 18.4 - Prob. 22PSCh. 18.4 - Prob. 23PSCh. 18.4 - Prob. 24PSCh. 18.4 - Prob. 25PSCh. 18.4 - Prob. 26PSCh. 18.4 - Prob. 27PSCh. 18.4 - Prob. 28PSCh. 18.4 - Prob. 29PSCh. 18.4 - Prob. 30PSCh. 18.4 - Prob. 31PSCh. 18.4 - Prob. 32PSCh. 18.4 - Prob. 33PSCh. 18.4 - Prob. 34PSCh. 18.4 - Prob. 35PSCh. 18.4 - Prob. 36PSCh. 18.4 - Prob. 37PSCh. 18.4 - Prob. 38PSCh. 18.4 - Prob. 39PSCh. 18.4 - Prob. 40PSCh. 18.4 - Prob. 41PSCh. 18.4 - Prob. 42PSCh. 18.4 - Prob. 43PSCh. 18.4 - Prob. 44PSCh. 18.4 - Prob. 45PSCh. 18.4 - Prob. 46PSCh. 18.4 - Prob. 47PSCh. 18.4 - Prob. 48PSCh. 18.4 - Prob. 49PSCh. 18.4 - Prob. 50PSCh. 18.4 - Prob. 51PSCh. 18.4 - Prob. 52PSCh. 18.4 - Prob. 53PSCh. 18.4 - Prob. 54PSCh. 18.4 - Prob. 55PSCh. 18.4 - Prob. 56PSCh. 18.4 - Prob. 57PSCh. 18.4 - Prob. 58PSCh. 18.4 - Prob. 59PSCh. 18.4 - Prob. 60PSCh. 18.CR - Prob. 1CRCh. 18.CR - Prob. 2CRCh. 18.CR - Prob. 3CRCh. 18.CR - Prob. 4CRCh. 18.CR - Prob. 5CRCh. 18.CR - Prob. 6CRCh. 18.CR - Prob. 7CRCh. 18.CR - Prob. 8CRCh. 18.CR - Prob. 9CRCh. 18.CR - Prob. 10CRCh. 18.CR - Prob. 11CRCh. 18.CR - Prob. 12CRCh. 18.CR - Prob. 13CRCh. 18.CR - Prob. 14CRCh. 18.CR - Prob. 15CRCh. 18.CR - Prob. 16CRCh. 18.CR - Prob. 17CRCh. 18.CR - Prob. 18CRCh. 18.CR - Prob. 19CRCh. 18.CR - Prob. 20CR
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