STAT. TECH. IN BUSINESS + ECON LOOSELEAF
18th Edition
ISBN: 9781264261765
Author: Lind
Publisher: MCG
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Chapter 20, Problem 13CE
a.
To determine
State the decision made by the manufacturer if he uses the maximin strategy.
b.
To determine
Provide the decision made by the manufacturer if he uses the maximax strategy.
c.
To determine
Identify the decision made by the manufacturer if he uses the expected monetary value criterion.
d.
To determine
Obtain the
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Problem1
We consider a two-period binomial model with the following properties: each period lastsone (1) year and the current stock price is S0 = 4. On each period, the stock price doubleswhen it moves up and is reduced by half when it moves down. The annual interest rateon the money market is 25%. (This model is the same as in Prob. 1 of HW#2).We consider four options on this market: A European call option with maturity T = 2 years and strike price K = 5; A European put option with maturity T = 2 years and strike price K = 5; An American call option with maturity T = 2 years and strike price K = 5; An American put option with maturity T = 2 years and strike price K = 5.(a) Find the price at time 0 of both European options.(b) Find the price at time 0 of both American options. Compare your results with (a)and comment.(c) For each of the American options, describe the optimal exercising strategy.
Problem 1.We consider a two-period binomial model with the following properties: each period lastsone (1) year and the current stock price is S0 = 4. On each period, the stock price doubleswhen it moves up and is reduced by half when it moves down. The annual interest rateon the money market is 25%.
We consider four options on this market: A European call option with maturity T = 2 years and strike price K = 5; A European put option with maturity T = 2 years and strike price K = 5; An American call option with maturity T = 2 years and strike price K = 5; An American put option with maturity T = 2 years and strike price K = 5.(a) Find the price at time 0 of both European options.(b) Find the price at time 0 of both American options. Compare your results with (a)and comment.(c) For each of the American options, describe the optimal exercising strategy.(d) We assume that you sell the American put to a market participant A for the pricefound in (b). Explain how you act on the market…
What is the standard scores associated to the left of z is 0.1446
Chapter 20 Solutions
STAT. TECH. IN BUSINESS + ECON LOOSELEAF
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- Note: The purpose of this problem below is to use computational techniques (Excelspreadsheet, Matlab, R, Python, etc.) and code the dynamic programming ideas seen inclass. Please provide the numerical answer to the questions as well as a sample of yourwork (spreadsheet, code file, etc.).We consider an N-period binomial model with the following properties: N = 60, thecurrent stock price is S0 = 1000; on each period, the stock price increases by 0.5% whenit moves up and decreases by 0.3% when it moves down. The annual interest rate on themoney market is 5%. (Notice that this model is a CRR model, which means that thebinomial tree is recombining.)(a) Find the price at time t0 = 0 of a (European) call option with strike price K = 1040and maturity T = 1 year.(b) Find the price at time t0 = 0 of a (European) put option with strike price K = 1040and maturity T = 1 year.(c) We consider now, that you are at time t5 (i.e. after 5 periods, which represents 1month later). Assume that the stock…arrow_forwardshow work in paperarrow_forwardshow all work (...or what you entered into your calculator...)arrow_forward
- answerarrow_forwardQuestion 2 The data below provides the battery life of thirty eight (38) motorcycle batteries. 100 83 83 105 110 81 114 99 101 105 78 115 74 96 106 89 94 81 106 91 93 86 79 103 94 108 113 100 117 120 77 93 93 85 76 89 78 88 680 a. Test the hypothesis that mean battery life is greater than 90. Use the 1% level of significance. b. Determine if the mean battery life is different from 80. Use the 10% level of significance. Show all steps for the hypothesis test c. Would your conlcusion in part (b) change at the 5% level of significance? | d. Confirm test results in part (b) using JASP. Note: All JASP input files and output tables should be providedarrow_forwardSuppose that 80% of athletes at a certain college graduate. You randomly select eight athletes. What’s the chance that at most 7 of them graduate?arrow_forward
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