Fundamentals of Differential Equations (9th Edition)
9th Edition
ISBN: 9780321977069
Author: R. Kent Nagle, Edward B. Saff, Arthur David Snider
Publisher: PEARSON
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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.)
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?
The Course Name Real Analysis please Solve questions by Real Analysis
Chapter 2 Solutions
Fundamentals of Differential Equations (9th Edition)
Ch. 2.2 - In Problems 16, determine whether the given...Ch. 2.2 - In Problems 16, determine whether the given...Ch. 2.2 - In Problems 16, determine whether the given...Ch. 2.2 - In Problems 16, determine whether the given...Ch. 2.2 - In Problems 16, determine whether the given...Ch. 2.2 - In Problems 16, determine whether the given...Ch. 2.2 - In Problems 716, solve the equation. 7. xdydx=1y3Ch. 2.2 - In Problems 716, solve the equation. 8. dxdt=3xt2Ch. 2.2 - In Problems 716, solve the equation. 9....Ch. 2.2 - In Problems 716, solve the equation. 10....
Ch. 2.2 - In Problems 716, solve the equation. 11....Ch. 2.2 - In Problems 716, solve the equation. 12....Ch. 2.2 - In Problems 716, solve the equation. 13....Ch. 2.2 - In Problems 716, solve the equation. 14. dxdtx3=xCh. 2.2 - In Problems 716, solve the equation. 15....Ch. 2.2 - In Problems 716, solve the equation. 16. y1 dy +...Ch. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - Prob. 23ECh. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - In Problems 1726, solve the initial value problem....Ch. 2.2 - Prob. 27ECh. 2.2 - Sketch the solution to the initial value problem...Ch. 2.2 - Uniqueness Questions. In Chapter 1 we indicated...Ch. 2.2 - As stated in this section, the separation of...Ch. 2.2 - Prob. 31ECh. 2.2 - Prob. 32ECh. 2.2 - Mixing. Suppose a brine containing 0.3 kilogram...Ch. 2.2 - Newtons Law of Cooling. According to Newtons law...Ch. 2.2 - Prob. 35ECh. 2.2 - Prob. 36ECh. 2.2 - Compound Interest. If P(t) is the amount of...Ch. 2.2 - Free Fall. In Section 2.1, we discussed a model...Ch. 2.2 - Grand Prix Race. Driver A had been leading...Ch. 2.2 - Prob. 40ECh. 2.3 - In Problems 16, determine whether the given...Ch. 2.3 - In Problems 16, determine whether the given...Ch. 2.3 - In Problems 16, determine whether the given...Ch. 2.3 - In Problems 16, determine whether the given...Ch. 2.3 - In Problems 16, determine whether the given...Ch. 2.3 - In Problems 16, determine whether the given...Ch. 2.3 - In Problems 716, obtain the general solution to...Ch. 2.3 - In Problems 716, obtain the general solution to...Ch. 2.3 - In Problems 716, obtain the general solution to...Ch. 2.3 - In Problems 716, obtain the general solution to...Ch. 2.3 - In Problems 716, obtain the general solution to...Ch. 2.3 - In Problems 716, obtain the general solution to...Ch. 2.3 - In Problems 716, obtain the general solution to...Ch. 2.3 - In Problems 716, obtain the general solution to...Ch. 2.3 - Prob. 15ECh. 2.3 - Prob. 17ECh. 2.3 - Prob. 18ECh. 2.3 - Prob. 19ECh. 2.3 - Prob. 20ECh. 2.3 - In Problems 1722, solve the initial value problem....Ch. 2.3 - In Problems 1722, solve the initial value problem....Ch. 2.3 - Radioactive Decay. In Example 2 assume that the...Ch. 2.3 - Prob. 24ECh. 2.3 - (a) Using definite integration, show that the...Ch. 2.3 - Prob. 26ECh. 2.3 - Constant Multiples of Solutions. (a) Show that y =...Ch. 2.3 - Prob. 29ECh. 2.3 - Bernoulli Equations. The equation (18) dydx+2y=xy2...Ch. 2.3 - Prob. 31ECh. 2.3 - Prob. 32ECh. 2.3 - Prob. 33ECh. 2.3 - Prob. 34ECh. 2.3 - Prob. 35ECh. 2.3 - Prob. 36ECh. 2.3 - Prob. 37ECh. 2.3 - Prob. 38ECh. 2.3 - Prob. 39ECh. 2.4 - In Problems 18, classify the equation as...Ch. 2.4 - In Problems 18, classify the equation as...Ch. 2.4 - Prob. 3ECh. 2.4 - Prob. 4ECh. 2.4 - In Problems 18, classify the equation as...Ch. 2.4 - In Problems 18, classify the equation as...Ch. 2.4 - In Problems 18, classify the equation as...Ch. 2.4 - In Problems 18, classify the equation as...Ch. 2.4 - Prob. 9ECh. 2.4 - In Problems 920, determine whether the equation is...Ch. 2.4 - Prob. 11ECh. 2.4 - Prob. 12ECh. 2.4 - Prob. 13ECh. 2.4 - In Problems 920, determine whether the equation is...Ch. 2.4 - Prob. 15ECh. 2.4 - In Problems 920, determine whether the equation is...Ch. 2.4 - Prob. 17ECh. 2.4 - In Problems 920, determine whether the equation is...Ch. 2.4 - Prob. 19ECh. 2.4 - Prob. 20ECh. 2.4 - In Problems 2126, solve the initial value problem....Ch. 2.4 - Prob. 22ECh. 2.4 - Prob. 23ECh. 2.4 - In Problems 2126, solve the initial value problem....Ch. 2.4 - Prob. 25ECh. 2.4 - In Problems 2126, solve the initial value problem....Ch. 2.4 - Prob. 27ECh. 2.4 - For each of the following equations, find the most...Ch. 2.4 - Prob. 29ECh. 2.4 - Prob. 30ECh. 2.4 - Prob. 31ECh. 2.4 - Orthogonal Trajectories. A geometric problem...Ch. 2.4 - Prob. 33ECh. 2.4 - Prob. 34ECh. 2.4 - Prob. 35ECh. 2.4 - Prob. 36ECh. 2.5 - Prob. 1ECh. 2.5 - In Problems 16, identify the equation as...Ch. 2.5 - Prob. 3ECh. 2.5 - Prob. 4ECh. 2.5 - In Problems 16, identify the equation as...Ch. 2.5 - Prob. 6ECh. 2.5 - Prob. 7ECh. 2.5 - Prob. 8ECh. 2.5 - Prob. 9ECh. 2.5 - Prob. 10ECh. 2.5 - Prob. 11ECh. 2.5 - Prob. 12ECh. 2.5 - Prob. 13ECh. 2.5 - Prob. 14ECh. 2.5 - Prob. 15ECh. 2.5 - Prob. 16ECh. 2.5 - Prob. 17ECh. 2.5 - Prob. 18ECh. 2.5 - Prob. 19ECh. 2.5 - Verify that when the linear differential equation...Ch. 2.6 - In Problems 18, identify (do not solve) the...Ch. 2.6 - Prob. 2ECh. 2.6 - Prob. 3ECh. 2.6 - Prob. 4ECh. 2.6 - Prob. 5ECh. 2.6 - Prob. 6ECh. 2.6 - In Problems 18, identify (do not solve) the...Ch. 2.6 - Prob. 8ECh. 2.6 - Use the method discussed under Homogeneous...Ch. 2.6 - Prob. 10ECh. 2.6 - Prob. 11ECh. 2.6 - Prob. 12ECh. 2.6 - Prob. 13ECh. 2.6 - Prob. 14ECh. 2.6 - Prob. 15ECh. 2.6 - Prob. 16ECh. 2.6 - Prob. 17ECh. 2.6 - Prob. 18ECh. 2.6 - Prob. 19ECh. 2.6 - Prob. 20ECh. 2.6 - Prob. 21ECh. 2.6 - Prob. 22ECh. 2.6 - Use the method discussed under Bernoulli Equations...Ch. 2.6 - Prob. 24ECh. 2.6 - Prob. 25ECh. 2.6 - Prob. 26ECh. 2.6 - Prob. 27ECh. 2.6 - Prob. 28ECh. 2.6 - Use the method discussed under Equations with...Ch. 2.6 - Prob. 30ECh. 2.6 - Prob. 31ECh. 2.6 - Prob. 32ECh. 2.6 - Prob. 33ECh. 2.6 - Prob. 34ECh. 2.6 - Prob. 35ECh. 2.6 - In Problems 3340, solve the equation given in: 36....Ch. 2.6 - Prob. 37ECh. 2.6 - Prob. 38ECh. 2.6 - Prob. 39ECh. 2.6 - Prob. 40ECh. 2.6 - Prob. 41ECh. 2.6 - Prob. 42ECh. 2.6 - Prob. 43ECh. 2.6 - Show that equation (13) reduces to an equation of...Ch. 2.6 - Prob. 45ECh. 2.6 - Prob. 46ECh. 2.6 - Prob. 47ECh. 2.6 - Prob. 48ECh. 2 - In Problems 130, solve the equation. 1....Ch. 2 - Prob. 2RPCh. 2 - Prob. 3RPCh. 2 - Prob. 4RPCh. 2 - Prob. 5RPCh. 2 - In Problems 130, solve the equation. 6. 2xy3 dx ...Ch. 2 - In Problems 130, solve the equation. 7. t3y2 dt +...Ch. 2 - Prob. 8RPCh. 2 - In Problems 130, solve the equation. 9. (x2 + y2)...Ch. 2 - Prob. 10RPCh. 2 - Prob. 11RPCh. 2 - Prob. 12RPCh. 2 - Prob. 13RPCh. 2 - Prob. 14RPCh. 2 - Prob. 15RPCh. 2 - Prob. 16RPCh. 2 - Prob. 17RPCh. 2 - Prob. 18RPCh. 2 - Prob. 19RPCh. 2 - Prob. 20RPCh. 2 - Prob. 21RPCh. 2 - Prob. 22RPCh. 2 - Prob. 23RPCh. 2 - In Problems 130, solve the equation. 24. (y/x +...Ch. 2 - Prob. 25RPCh. 2 - Prob. 26RPCh. 2 - Prob. 27RPCh. 2 - Prob. 28RPCh. 2 - Prob. 29RPCh. 2 - Prob. 30RPCh. 2 - Prob. 31RPCh. 2 - Prob. 32RPCh. 2 - Prob. 33RPCh. 2 - Prob. 34RPCh. 2 - Prob. 35RPCh. 2 - Prob. 36RPCh. 2 - Prob. 37RPCh. 2 - Prob. 38RPCh. 2 - Prob. 39RPCh. 2 - Prob. 40RPCh. 2 - Prob. 41RP
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