Discrete Mathematics and Its Applications ( 8th International Edition ) ISBN:9781260091991
8th Edition
ISBN: 9781259731709
Author: ROSEN
Publisher: MCG
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Chapter 2, Problem 7SE
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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
Discrete Mathematics and Its Applications ( 8th International Edition ) ISBN:9781260091991
Ch. 2.1 - List the members of these sets. { xx is a real...Ch. 2.1 - Use set builder notation to give a description of...Ch. 2.1 - Which of the intervals (0, 5), (0, 5], [0, 5), [0,...Ch. 2.1 - For each of these intervals, list all its elements...Ch. 2.1 - For each of these pairs of sets, determine whether...Ch. 2.1 - For each of these pairs of sets, determine whether...Ch. 2.1 - Prob. 7ECh. 2.1 - Prob. 8ECh. 2.1 - For each of the following sets, determine whether...Ch. 2.1 - Prob. 10E
Ch. 2.1 - Determine whether each of these statements is true...Ch. 2.1 - Determine whether these statements are true or...Ch. 2.1 - Determine whether each of these statements is true...Ch. 2.1 - Prob. 14ECh. 2.1 - Use a Venn diagram to illustrate the set of all...Ch. 2.1 - Prob. 16ECh. 2.1 - Use a Venn diagram to illustrate the re1ationships...Ch. 2.1 - Use a Venn diagram to illustrate the relationships...Ch. 2.1 - Prob. 19ECh. 2.1 - Prob. 20ECh. 2.1 - What is the cardinality of each of these sets? {a}...Ch. 2.1 - What is the cardinality of each of these sets? {}...Ch. 2.1 - Prob. 23ECh. 2.1 - Prob. 24ECh. 2.1 - How many elements does each of these sets have...Ch. 2.1 - Determine whether each of these sets is the power...Ch. 2.1 - Prove that P(A)P(B) if and only if AB .Ch. 2.1 - Show that if AC and BD , then ABCDCh. 2.1 - Let A={a,b,c,d} and B={y,z} . Find AB . BA .Ch. 2.1 - Prob. 30ECh. 2.1 - That is the Cartesian product ABC , where A is the...Ch. 2.1 - Prob. 32ECh. 2.1 - Prob. 33ECh. 2.1 - Let A={a,b,c} , B={x,y} , and C={0,l} . Find ABC ....Ch. 2.1 - Find A2 if A={0,1,3} A={1,2,a,b}Ch. 2.1 - Find A3 if A={a} A={0,a}Ch. 2.1 - How many different elements does AB have if A has...Ch. 2.1 - How many different elements does ABC have if A has...Ch. 2.1 - How many different elements does An have when A...Ch. 2.1 - Show that ABBA , when A and B are nonempty, unless...Ch. 2.1 - Explain why ABC and (AB)C are not the same.Ch. 2.1 - Explain why (AB)(CD) and A(BC)D are not the same.Ch. 2.1 - Prove or disprove that if A and B are sets, then...Ch. 2.1 - Prove or disprove that if A, B, and C are nonempty...Ch. 2.1 - Translate each of these quantifications into...Ch. 2.1 - Translate each of these quantifications into...Ch. 2.1 - Find the truth set of each of these predicates...Ch. 2.1 - Find the truth set of each of these predicates...Ch. 2.1 - Prob. 49ECh. 2.1 - Prob. 50ECh. 2.1 - Prob. 51ECh. 2.2 - Prob. 1ECh. 2.2 - Suppose that A is the set of sophomores at your...Ch. 2.2 - Let A={1,2,3,4,5} and B={0,3,6} . Find AB . AB ....Ch. 2.2 - Let A={a,b,c,d,e} and B={a,b,c,d,e,f,g,h} . Find...Ch. 2.2 - Prob. 5ECh. 2.2 - Prob. 6ECh. 2.2 - Prob. 7ECh. 2.2 - Prob. 8ECh. 2.2 - Prob. 9ECh. 2.2 - Prob. 10ECh. 2.2 - Prob. 11ECh. 2.2 - Prob. 12ECh. 2.2 - TABLE 1 Set Identities. Identity Name AU=AA=A...Ch. 2.2 - Prob. 14ECh. 2.2 - Prob. 15ECh. 2.2 - Prob. 16ECh. 2.2 - Show that if A and B are sets in a universe U then...Ch. 2.2 - Prob. 18ECh. 2.2 - Prob. 19ECh. 2.2 - Prob. 20ECh. 2.2 - Prob. 21ECh. 2.2 - Prob. 22ECh. 2.2 - Prob. 23ECh. 2.2 - Prob. 24ECh. 2.2 - Prob. 25ECh. 2.2 - Let A, B, and C be sets. Show that (AB)C=(AC)(BC)...Ch. 2.2 - Prob. 27ECh. 2.2 - Prob. 28ECh. 2.2 - Prob. 29ECh. 2.2 - Prob. 30ECh. 2.2 - Prob. 31ECh. 2.2 - Prob. 32ECh. 2.2 - Let A and B be subsets of a universal set U. Show...Ch. 2.2 - Let A, B, and C be sets. Use the identity AB=AB ,...Ch. 2.2 - Prob. 35ECh. 2.2 - Prob. 36ECh. 2.2 - Prove or disprove that for all sets A, B, and C,...Ch. 2.2 - Prob. 38ECh. 2.2 - Prob. 39ECh. 2.2 - Prob. 40ECh. 2.2 - Prob. 41ECh. 2.2 - Prob. 42ECh. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - Prob. 44ECh. 2.2 - Prob. 45ECh. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - Prob. 47ECh. 2.2 - Prob. 48ECh. 2.2 - Prob. 49ECh. 2.2 - Prob. 50ECh. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - Prob. 52ECh. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - Prob. 54ECh. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - Prob. 58ECh. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - The symmetric difference of A and B, denoted by AB...Ch. 2.2 - Prob. 64ECh. 2.2 - Prob. 65ECh. 2.2 - Prob. 66ECh. 2.2 - Prob. 67ECh. 2.2 - Prob. 68ECh. 2.2 - Prob. 69ECh. 2.2 - The successor of the set A is the set A{A} ....Ch. 2.2 - The Jaccard similarity J(A,B) of the finite sets A...Ch. 2.2 - Prob. 72ECh. 2.2 - Prob. 73ECh. 2.2 - Prob. 74ECh. 2.2 - Prob. 75ECh. 2.3 - Why is f not a function from R to R if f(x)=1/x?...Ch. 2.3 - Determine whether f is a function from Z to R if...Ch. 2.3 - Prob. 3ECh. 2.3 - Find the domain and range of these functions. Note...Ch. 2.3 - Find the domain and range of these functions. Note...Ch. 2.3 - Find the domain and range of these functions. the...Ch. 2.3 - Find the domain and range of these functions. the...Ch. 2.3 - Find these values. 1.1 1.1 0.1 0.1 2.99 2.99 12+12...Ch. 2.3 - Find these values. 34 78 34 78 3 1 12+32 1252Ch. 2.3 - Prob. 10ECh. 2.3 - Which functions in Exercise 10 are onto? Determine...Ch. 2.3 - Determine whether each of these functions from Z...Ch. 2.3 - Prob. 13ECh. 2.3 - Determine whether f:ZZZ is onto if f(m,n)=2mn ....Ch. 2.3 - Determine whether the function f:ZZZ is onto if...Ch. 2.3 - Consider these functions from the set of students...Ch. 2.3 - Consider these functions from the set of teachers...Ch. 2.3 - Specify a codomain for each of the functions in...Ch. 2.3 - Specify a codomain for each of the functions in...Ch. 2.3 - Prob. 20ECh. 2.3 - Give an explicit formula for a function from the...Ch. 2.3 - Determine whether each of these functions is a...Ch. 2.3 - Determine whether each of these functions is a...Ch. 2.3 - Let f:RR and let f(x)0 for all xR . Show that f(x)...Ch. 2.3 - Let f:RR and 1et f(x)0 for all xR . Show that f(x)...Ch. 2.3 - Prove that a strictly increasing function from R...Ch. 2.3 - Prob. 27ECh. 2.3 - Show that the function f(x)=ex from the set of...Ch. 2.3 - Prob. 29ECh. 2.3 - Let S={1,0,2,4,7} . Find f(S) if f(x)=1 ....Ch. 2.3 - Let f(x)=x2/3 . Find f(S) if S={2,1,0,1,2,3}...Ch. 2.3 - Let f(x)=2x where the domain is the set of real...Ch. 2.3 - Prob. 33ECh. 2.3 - Suppose that g is a function from A to B and f is...Ch. 2.3 - Prob. 35ECh. 2.3 - If f and fog are one-to-one, does it follow that g...Ch. 2.3 - Prob. 37ECh. 2.3 - Find fog and gof where f(x)=x2 and g(x)=x+2 , are...Ch. 2.3 - Prob. 39ECh. 2.3 - Let f(x)ax+b and g(x)=cx+d , where a, b, c, and d...Ch. 2.3 - Show that the function f(x)ax+b from R to R, where...Ch. 2.3 - Prob. 42ECh. 2.3 - Prob. 43ECh. 2.3 - Let f be the function from R to R defined by...Ch. 2.3 - Let g(x)=|x| . Find g1({0}) . g1({1,0,1}) ....Ch. 2.3 - Prob. 46ECh. 2.3 - Prob. 47ECh. 2.3 - Show x+12 is the closest integer to the number x...Ch. 2.3 - Prob. 49ECh. 2.3 - Show that if x is a real number, then xx=1 if x is...Ch. 2.3 - Prob. 51ECh. 2.3 - Prob. 52ECh. 2.3 - Prob. 53ECh. 2.3 - Show that if x is a real number and n is an...Ch. 2.3 - Prob. 55ECh. 2.3 - Prove that if x is a real number, then x=x and x=x...Ch. 2.3 - Prob. 57ECh. 2.3 - Prob. 58ECh. 2.3 - Prob. 59ECh. 2.3 - How many bytes are required to encode n bits of...Ch. 2.3 - How many bytes are required to encode n bits of...Ch. 2.3 - How many ATM cells (described in Example 30) can...Ch. 2.3 - Data are transmitted over a particular Ethernet...Ch. 2.3 - Draw the graph of the function f(n)=1n2 from Z to...Ch. 2.3 - Draw the graph of the function f(x)=2x from R to...Ch. 2.3 - Draw the graph of the function f(x)=x/2 from R to...Ch. 2.3 - Prob. 67ECh. 2.3 - Draw the graph of the function f(x)=x+x/2 from R...Ch. 2.3 - Draw graphs of each of these functions. f(x)=x+12...Ch. 2.3 - Prob. 70ECh. 2.3 - Find the inverse function of f(x)=x3+1 .Ch. 2.3 - Suppose that f is an invertible function from Y to...Ch. 2.3 - Let S be a subset of a universal set U. The...Ch. 2.3 - Suppose that f is a function from A to B, where A...Ch. 2.3 - Prove or disprove each of these statements about...Ch. 2.3 - Prove or disprove each of these statements about...Ch. 2.3 - Prove that if x is a positive real number, then...Ch. 2.3 - Let x be a real number. Show that 3x=x+x+13+x+23 .Ch. 2.3 - For each of these partial functions, determine its...Ch. 2.3 - Prob. 80ECh. 2.3 - Prob. 81ECh. 2.3 - Show that a set S is infinite if and only if there...Ch. 2.4 - Find these terms of the sequence {an} , where...Ch. 2.4 - What is the term a8 of the sequence {an} if an ,...Ch. 2.4 - What are the terms a0,a1,a2 , and a3 of the...Ch. 2.4 - What are the terms a0,a1,a2 , and a3 of the...Ch. 2.4 - List the first 10 terms of each of these...Ch. 2.4 - List the first lo terms of each of these...Ch. 2.4 - Find at least three different sequences beginning...Ch. 2.4 - Find at least three different sequences beginning...Ch. 2.4 - Find the first five terms of the sequence defined...Ch. 2.4 - Find the first six terms of the sequence defined...Ch. 2.4 - Let an=2n+53n for n=0,1,2,,... Find a0,a1,a2,a3 ,...Ch. 2.4 - Show that the sequence {an} is a solution of the...Ch. 2.4 - Is the sequence {an} a solution of the recurrence...Ch. 2.4 - For each of these sequences find a recurrence...Ch. 2.4 - Show that the sequence {an} is a solution of the...Ch. 2.4 - Find the solution to each of these recurrence...Ch. 2.4 - Find the solution to each of these recurrence...Ch. 2.4 - A person deposits $1000 in an account that yields...Ch. 2.4 - Suppose that the number of bacteria in a colony...Ch. 2.4 - Assume that the population of the world in 2017...Ch. 2.4 - A factory makes custom sports cars at an...Ch. 2.4 - An employee joined a company in 2017 with a...Ch. 2.4 - Find a recurrence relation for the balance B(k)...Ch. 2.4 - Find a recurrence relation for the balance B(k)...Ch. 2.4 - For each of these lists of integers, provide a...Ch. 2.4 - For each of these lists of integers, provide a...Ch. 2.4 - *27. Show that if an denotes the nth positive...Ch. 2.4 - Let an , be the nth term of the sequence 1, 2, 2,...Ch. 2.4 - What are the values of these sums? k=15(k+1)...Ch. 2.4 - What are the values of these sums, where...Ch. 2.4 - What is the value of each of these sums of terms...Ch. 2.4 - Find the value of each of these sums. j=08(1+ ( 1...Ch. 2.4 - Compute each of these double sums. i=12j=13( i+j)...Ch. 2.4 - Compute each of these double sums. i=13j=12( i+j)...Ch. 2.4 - Show that j=1n(aja j1)=ana0 , where a0,a1,...,an...Ch. 2.4 - Use the identity 1/(k(k+1))=1/k1/(k+1) and...Ch. 2.4 - Sum both sides of the identity k2(k21)2=2k1 from...Ch. 2.4 - Use the technique given in Exercise 35, together...Ch. 2.4 - Find k=100200k . (Use Table 2.) TABLE 2 Some...Ch. 2.4 - Prob. 40ECh. 2.4 - Find k=1020k2(k3) . (Use Table 2.) TABLE 2 Some...Ch. 2.4 - Find . k=1020(k1)(2k2+1) (Use Table 2.) TABLE 2...Ch. 2.4 - Find a formula for k=0mk , when m is a positive...Ch. 2.4 - Find a formula for k=0mk3 , when m is a positive...Ch. 2.4 - There is also a special notation for products. The...Ch. 2.4 - Express n! using product notation.Ch. 2.4 - Find j=04j! .Ch. 2.4 - Find j=04j! .Ch. 2.5 - Prob. 1ECh. 2.5 - Determine whether each of these sets is finite,...Ch. 2.5 - Determine whether each of these sets is countable...Ch. 2.5 - Determine whether each of these sets is countable...Ch. 2.5 - Show that a finite group of guests arriving at...Ch. 2.5 - Suppose that Hilbert’s Grand Hotel is fully...Ch. 2.5 - Suppose that Hilbert’s Grand Hotel is fully...Ch. 2.5 - Show that a countably infinite number of guests...Ch. 2.5 - Suppose that a countably infinite number of buses,...Ch. 2.5 - Give an example of two uncountable sets A and B...Ch. 2.5 - Give an example of two uncountable sets A and B...Ch. 2.5 - Prob. 12ECh. 2.5 - Prob. 13ECh. 2.5 - Prob. 14ECh. 2.5 - Prob. 15ECh. 2.5 - Show that a subset of a countable set is also...Ch. 2.5 - Prob. 17ECh. 2.5 - Prob. 18ECh. 2.5 - Prob. 19ECh. 2.5 - Show that if |A|=|B| and |B|=|C| , then |A|=|C| .Ch. 2.5 - Prob. 21ECh. 2.5 - Suppose that A is a countable set. Show that the...Ch. 2.5 - Prob. 23ECh. 2.5 - Prob. 24ECh. 2.5 - Prob. 25ECh. 2.5 - Prob. 26ECh. 2.5 - Show that the union of a countable number of...Ch. 2.5 - Show that the set Z+Z+ is countableCh. 2.5 - Prob. 29ECh. 2.5 - Show that the set of real numbers that are...Ch. 2.5 - Show that Z+Z+ t is countable by showing that the...Ch. 2.5 - Show that when you substitute (3n+1)2 for each...Ch. 2.5 - Prob. 33ECh. 2.5 - Show that (0, 1) and R have the same cardinality...Ch. 2.5 - Prob. 35ECh. 2.5 - Prob. 36ECh. 2.5 - Show that the set of all computer programs in a...Ch. 2.5 - Prob. 38ECh. 2.5 - Prob. 39ECh. 2.5 - Show that if S is a set, then there does not exist...Ch. 2.5 - In this exercise, we prove the Schröder-Bernstein...Ch. 2.6 - Let A=[111320461137] . What size is A? What is the...Ch. 2.6 - Find A + B, where A=[104122022],B=[135223230]...Ch. 2.6 - Find AB if A=[2132],B=[0413] A=[110123],B=[321102]...Ch. 2.6 - Find the product AB, where...Ch. 2.6 - Find a matrix A such that [2314]A=[3012] . [Hint:...Ch. 2.6 - Find a matric A such that [132211403]A=[713103137]Ch. 2.6 - Prob. 7ECh. 2.6 - Prob. 8ECh. 2.6 - Prob. 9ECh. 2.6 - Prob. 10ECh. 2.6 - Prob. 11ECh. 2.6 - In this exercise we show that matrix...Ch. 2.6 - Prob. 13ECh. 2.6 - The nn matrix A=[aij] is called a diagonal matrix...Ch. 2.6 - Let A=[1101] . Find a formula for An , whenever n...Ch. 2.6 - Show that (At)t=A .Ch. 2.6 - Prob. 17ECh. 2.6 - Show that [231121113] Is the inverse of...Ch. 2.6 - Prob. 19ECh. 2.6 - Prob. 20ECh. 2.6 - Prob. 21ECh. 2.6 - Prob. 22ECh. 2.6 - Prob. 23ECh. 2.6 - Prob. 24ECh. 2.6 - Prob. 25ECh. 2.6 - Let A=[1101] and B=[0110] Find AB . AB . AB .Ch. 2.6 - Prob. 27ECh. 2.6 - Find the Boolean product of A and B, where...Ch. 2.6 - Prob. 29ECh. 2.6 - Let A be a zeroone matrix. Show that AA=A . AA=A .Ch. 2.6 - Prob. 31ECh. 2.6 - Prob. 32ECh. 2.6 - Prob. 33ECh. 2.6 - Prob. 34ECh. 2.6 - In this exercise we will show that the Boolean...Ch. 2 - Prob. 1RQCh. 2 - What is the empty set? Show that the empty set is...Ch. 2 - Define |S|, the cardinality of the set S. Give a...Ch. 2 - Define the power set of a set S. When is the empty...Ch. 2 - Define the union. intersection, difference, and...Ch. 2 - Prob. 6RQCh. 2 - Explain the relationship between logical...Ch. 2 - Prob. 8RQCh. 2 - Prob. 9RQCh. 2 - Define the inverse of a function. When does a...Ch. 2 - Prob. 11RQCh. 2 - Conjecture a formula for the terms of the sequence...Ch. 2 - Prob. 13RQCh. 2 - What is the sum of the terms of the geometric...Ch. 2 - Show that the set of odd integers is countable.Ch. 2 - Prob. 16RQCh. 2 - Prob. 17RQCh. 2 - Prob. 18RQCh. 2 - Prob. 1SECh. 2 - Prob. 2SECh. 2 - Prob. 3SECh. 2 - Prob. 4SECh. 2 - Prob. 5SECh. 2 - Prob. 6SECh. 2 - Prob. 7SECh. 2 - Prob. 8SECh. 2 - Prob. 9SECh. 2 - Prob. 10SECh. 2 - Prob. 11SECh. 2 - Prob. 12SECh. 2 - Prob. 13SECh. 2 - Prob. 14SECh. 2 - Prob. 15SECh. 2 - *16. Suppose that f is a function from the set A...Ch. 2 - Prob. 17SECh. 2 - Prob. 18SECh. 2 - Prob. 19SECh. 2 - Prob. 20SECh. 2 - Prob. 21SECh. 2 - Prob. 22SECh. 2 - Prob. 23SECh. 2 - Prove that if x is a real number, then x/2/2=x/4 .Ch. 2 - Prob. 25SECh. 2 - Prob. 26SECh. 2 - Prove that if m is a positive integer and x is a...Ch. 2 - We define the Ulam numbers by setting u1=1 and...Ch. 2 - Prob. 29SECh. 2 - Determine a rule for generating the terms of the...Ch. 2 - Prob. 31SECh. 2 - Prob. 32SECh. 2 - Prob. 33SECh. 2 - Show that the set of all finite subsets of the set...Ch. 2 - Prob. 35SECh. 2 - Prob. 36SECh. 2 - Prob. 37SECh. 2 - Prob. 38SECh. 2 - Prob. 39SECh. 2 - Prob. 40SECh. 2 - Prob. 41SECh. 2 - Prob. 1CPCh. 2 - Prob. 2CPCh. 2 - Prob. 3CPCh. 2 - Prob. 4CPCh. 2 - Prob. 5CPCh. 2 - Prob. 6CPCh. 2 - Prob. 7CPCh. 2 - Prob. 8CPCh. 2 - Prob. 9CPCh. 2 - Prob. 10CPCh. 2 - Prob. 11CPCh. 2 - Prob. 12CPCh. 2 - Prob. 1CAECh. 2 - Prob. 2CAECh. 2 - Use a computational program or programs you have...Ch. 2 - Prob. 4CAECh. 2 - Prob. 5CAECh. 2 - Use a computational program or programs you have...Ch. 2 - Prob. 1WPCh. 2 - Research where the concept of a function first...Ch. 2 - Explain the different ways in which the...Ch. 2 - Define the recently invented EKG sequence and...Ch. 2 - Prob. 5WPCh. 2 - Expand the discussion of the continuum hypothesis...
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- We consider a 4-dimensional stock price model given (under P) by dẴ₁ = µ· Xt dt + йt · ΣdŴt where (W) is an n-dimensional Brownian motion, π = (0.02, 0.01, -0.02, 0.05), 0.2 0 0 0 0.3 0.4 0 0 Σ= -0.1 -4a За 0 0.2 0.4 -0.1 0.2) and a E R. We assume that ☑0 = (1, 1, 1, 1) and that the interest rate on the market is r = 0.02. (a) Give a condition on a that would make stock #3 be the one with largest volatility. (b) Find the diversification coefficient for this portfolio as a function of a. (c) Determine the maximum diversification coefficient d that you could reach by varying the value of a? 2arrow_forwardQuestion 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…arrow_forwardIn 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.)arrow_forward
- 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.arrow_forwardThe managing director of a consulting group has the accompanying monthly data on total overhead costs and professional labor hours to bill to clients. Complete parts a through c. Question content area bottom Part 1 a. Develop a simple linear regression model between billable hours and overhead costs. Overhead Costsequals=212495.2212495.2plus+left parenthesis 42.4857 right parenthesis42.485742.4857times×Billable Hours (Round the constant to one decimal place as needed. Round the coefficient to four decimal places as needed. Do not include the $ symbol in your answers.) Part 2 b. Interpret the coefficients of your regression model. Specifically, what does the fixed component of the model mean to the consulting firm? Interpret the fixed term, b 0b0, if appropriate. Choose the correct answer below. A. The value of b 0b0 is the predicted billable hours for an overhead cost of 0 dollars. B. It is not appropriate to interpret b 0b0, because its value…arrow_forward3. 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.arrow_forward
- Write the equation of the trigonometric function shown in the graph. LO 5 4 3 2 1 y -5 -5 4 8 8 500 -1 -2 -3 -4 -5 x 5 15л 5л 25л 15л 35π 5л 4 8 2 8 4 8arrow_forwardc) Using only Laplace transforms solve the following Samuelson model given below i.e., the second order difference equation (where yt is national income): - Yt+2 6yt+1+5y₁ = 0, if y₁ = 0 for t < 0, and y₁ = 0, y₁ = 1 1-e-s You may use without proof that L-1[s(1-re-s)] = f(t) = r² for n ≤tarrow_forward5. 156 m/WXY = 59° 63 E 7. B E 101 C mFE = 6. 68° 8. C 17arrow_forwardScoring: MATH 15 FILING /10 COMPARISON /10 RULER I 13 Express EMPLOYMENT PROFESSIONALS NAME: SKILLS EVALUATION TEST- Light Industrial MATH-Solve the following problems. (Feel free to use a calculator.) DATE: 1. If you were asked to load 225 boxes onto a truck, and the boxes are crated, with each crate containing nine boxes, how many crates would you need to load? 2. Imagine you live only one mile from work and you decide to walk. If you walk four miles per hour, how long will it take you to walk one mile? 3. Add 3 feet 6 inches + 8 feet 2 inches + 4 inches + 2 feet 5 inches. 4. In a grocery store, steak costs $3.85 per pound. If you buy a three-pound steak and pay for it with a $20 bill, how much change will you get? 5. Add 8 minutes 32 seconds + 37 minutes 18 seconds + 15 seconds. FILING - In the space provided, write the number of the file cabinet where the company should be filed. Example: File Cabinet #4 Elson Co. File Cabinets: 1. Aa-Bb 3. Cg-Dz 5. Ga-Hz 7. La-Md 9. Na-Oz 2. Bc-Cf…arrow_forwardpart 3 of the question is: A power outage occurs 6 min after the ride started. Passengers must wait for their cage to be manually cranked into the lowest position in order to exit the ride. Sine function model: where h is the height of the last passenger above the ground measured in feet and t is the time of operation of the ride in minutes. What is the height of the last passenger at the moment of the power outage? Verify your answer by evaluating the sine function model. Will the last passenger to board the ride need to wait in order to exit the ride? Explain.arrow_forwardIf you were asked to load 225 boxes onto a truck, and the boxes are crated, with each crate containing nine boxes, how many crates would you need to load?arrow_forwardarrow_back_iosSEE MORE QUESTIONSarrow_forward_ios
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