Mathematics: A Discrete Introduction
3rd Edition
ISBN: 9780840049421
Author: Edward A. Scheinerman
Publisher: Cengage Learning
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Chapter 2.13, Problem 13.6E
a.
To determine
To find: The proof for the given expression
b.
To determine
To find: The proof for the given expression
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The Course Name Real Analysis please Solve questions by Real Analysis
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?
2
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…
Chapter 2 Solutions
Mathematics: A Discrete Introduction
Ch. 2.8 - Write out all the possible two-letter words one...Ch. 2.8 - Airports have names, but they also have...Ch. 2.8 - Prob. 8.3ECh. 2.8 - Prob. 8.4ECh. 2.8 - Prob. 8.5ECh. 2.8 - Prob. 8.6ECh. 2.8 - Prob. 8.7ECh. 2.8 - Prob. 8.8ECh. 2.8 - Prob. 8.9ECh. 2.8 - Prob. 8.10E
Ch. 2.8 - Prob. 8.11ECh. 2.8 - Prob. 8.12ECh. 2.8 - Prob. 8.13ECh. 2.8 - Prob. 8.14ECh. 2.8 - Prob. 8.15ECh. 2.8 - Prob. 8.16ECh. 2.8 - Prob. 8.17ECh. 2.8 - Prob. 8.18ECh. 2.8 - Prob. 8.19ECh. 2.9 - Prob. 9.1ECh. 2.9 - Prob. 9.2ECh. 2.9 - Prob. 9.3ECh. 2.9 - Prob. 9.4ECh. 2.9 - Prob. 9.5ECh. 2.9 - Prob. 9.6ECh. 2.9 - Prob. 9.7ECh. 2.9 - Prob. 9.8ECh. 2.9 - Prob. 9.9ECh. 2.9 - Prob. 9.10ECh. 2.9 - Prob. 9.11ECh. 2.9 - Prob. 9.12ECh. 2.9 - Prob. 9.13ECh. 2.9 - Prob. 9.14ECh. 2.9 - Prob. 9.15ECh. 2.9 - Prob. 9.16ECh. 2.9 - Prob. 9.17ECh. 2.9 - Prob. 9.18ECh. 2.10 - Prob. 10.1ECh. 2.10 - Prob. 10.2ECh. 2.10 - Prob. 10.3ECh. 2.10 - Prob. 10.4ECh. 2.10 - Prob. 10.5ECh. 2.10 - Prob. 10.6ECh. 2.10 - Prob. 10.7ECh. 2.10 - Prob. 10.8ECh. 2.10 - Prob. 10.9ECh. 2.10 - Let A=x:4x and let B=x:2x. Prove that AB.Ch. 2.10 - Prob. 10.11ECh. 2.10 - Prob. 10.12ECh. 2.10 - Prob. 10.13ECh. 2.10 - Prob. 10.14ECh. 2.10 - Prob. 10.15ECh. 2.11 - Write the following sentences using the quantifier...Ch. 2.11 - Prob. 11.2ECh. 2.11 - Prob. 11.3ECh. 2.11 - Prob. 11.4ECh. 2.11 - Prob. 11.5ECh. 2.11 - Prob. 11.6ECh. 2.11 - Prob. 11.7ECh. 2.11 - Prob. 11.8ECh. 2.12 - Prob. 12.1ECh. 2.12 - Prob. 12.2ECh. 2.12 - Prob. 12.3ECh. 2.12 - Prob. 12.4ECh. 2.12 - Prob. 12.5ECh. 2.12 - Prob. 12.6ECh. 2.12 - Prob. 12.7ECh. 2.12 - Prob. 12.8ECh. 2.12 - Prob. 12.9ECh. 2.12 - Prob. 12.10ECh. 2.12 - Prob. 12.11ECh. 2.12 - Prob. 12.12ECh. 2.12 - Prob. 12.13ECh. 2.12 - Prob. 12.14ECh. 2.12 - Prob. 12.15ECh. 2.12 - Prob. 12.16ECh. 2.12 - Prob. 12.17ECh. 2.12 - Prob. 12.18ECh. 2.12 - Prob. 12.19ECh. 2.12 - Prob. 12.20ECh. 2.12 - Prob. 12.21ECh. 2.12 - Prob. 12.22ECh. 2.12 - Prob. 12.23ECh. 2.12 - Prob. 12.24ECh. 2.12 - Prob. 12.25ECh. 2.12 - Prob. 12.26ECh. 2.12 - Prob. 12.27ECh. 2.12 - Prob. 12.28ECh. 2.12 - Prob. 12.29ECh. 2.12 - Prob. 12.30ECh. 2.13 - Prob. 13.1ECh. 2.13 - Prob. 13.2ECh. 2.13 - Prob. 13.3ECh. 2.13 - Prob. 13.4ECh. 2.13 - Prob. 13.5ECh. 2.13 - Prob. 13.6ECh. 2.13 - Prob. 13.7ECh. 2 - Prob. 1STCh. 2 - Prob. 2STCh. 2 - Prob. 3STCh. 2 - Prob. 4STCh. 2 - Prob. 5STCh. 2 - Prob. 6STCh. 2 - Prob. 7STCh. 2 - Prob. 8STCh. 2 - Prob. 9STCh. 2 - Prob. 10STCh. 2 - Prob. 11STCh. 2 - Prob. 12STCh. 2 - Prob. 13STCh. 2 - Prob. 14STCh. 2 - Prob. 15STCh. 2 - Prob. 16STCh. 2 - Prob. 17STCh. 2 - Prob. 18STCh. 2 - Prob. 19STCh. 2 - Prob. 20ST
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