Statistics for Engineers and Scientists
4th Edition
ISBN: 9780073401331
Author: William Navidi Prof.
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 2.5, Problem 12E
a.
To determine
Find the
b.
To determine
Find the variance of the Needleman-Wunsch score.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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?
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
Chapter 2 Solutions
Statistics for Engineers and Scientists
Ch. 2.1 - The probability that a bearing fails during the...Ch. 2.1 - A die (six faces) has the number 1 painted on...Ch. 2.1 - A section of an exam contains four True-False...Ch. 2.1 - Three times each day, a quality engineer samples a...Ch. 2.1 - Four candidates are to be interviewed for a job....Ch. 2.1 - Refer to Exercise 5. Two candidates are randomly...Ch. 2.1 - In a survey of households with television sets,...Ch. 2.1 - An automobile insurance company divides customers...Ch. 2.1 - Among the cast aluminum parts manufactured on a...Ch. 2.1 - The article High Cumulative Risk of Lung Cancer...
Ch. 2.1 - A quality-control engineer samples 100 items...Ch. 2.1 - Let V be the event that a computer contains a...Ch. 2.1 - Let S be the event that a randomly selected...Ch. 2.1 - Six hundred paving stones were examined for...Ch. 2.1 - All the fourth-graders in a certain elementary...Ch. 2.1 - A system contains two components, A and B. The...Ch. 2.1 - A system contains two components, A and B. The...Ch. 2.1 - Human blood may contain either or both of two...Ch. 2.1 - True or false: If A and B are mutually exclusive,...Ch. 2.1 - A flywheel is attached to a crankshaft by 12...Ch. 2.2 - DNA molecules consist of chemically linked...Ch. 2.2 - A metallurgist is designing an experiment to...Ch. 2.2 - The article Improved Bioequivalence Assessment of...Ch. 2.2 - A group of 18 people have gotten together to play...Ch. 2.2 - In horse racing, one can make a trifecta bet by...Ch. 2.2 - A college math department consisting of 10 faculty...Ch. 2.2 - A test consists of 15 questions. Ten are...Ch. 2.2 - In a certain state, license plates consist of...Ch. 2.2 - A computer password consists of eight characters....Ch. 2.2 - A company has hired 15 new employees, and must...Ch. 2.2 - Let A and B be events with P(A) = 0.8 and P(A B)...Ch. 2.2 - A drawer contains 6 red socks, 4 green socks, and...Ch. 2.3 - Let A and B be events with P(A) = 0.8 and P(A B)...Ch. 2.3 - Let A and B be events with P(A) = 0.5 and P(A Bc)...Ch. 2.3 - A box contains 15 resistors. Ten of them are...Ch. 2.3 - Prob. 4ECh. 2.3 - On graduation day at a large university, one...Ch. 2.3 - The article Integrating Risk Assessment and Life...Ch. 2.3 - Suppose that start-up companies in the area of...Ch. 2.3 - A drag racer has two parachutes, a main and a...Ch. 2.3 - Of people in a certain city who bought a new...Ch. 2.3 - Of all failures of a certain type of computer hard...Ch. 2.3 - In the process of producing engine valves, the...Ch. 2.3 - Sarah and Thomas are going bowling. The...Ch. 2.3 - A particular automatic sprinkler system has two...Ch. 2.3 - Laura and Philip each fire one shot at a target....Ch. 2.3 - A population of 600 semiconductor wafers contains...Ch. 2.3 - Refer to Exercise 15. Let E1 be the event that the...Ch. 2.3 - A geneticist is studying two genes. Each gene can...Ch. 2.3 - A car dealer sold 750 automobiles last year. The...Ch. 2.3 - The following table presents the 100 senators of...Ch. 2.3 - An automobile insurance company divides customers...Ch. 2.3 - Nuclear power plants have redundant components in...Ch. 2.3 - Prob. 22ECh. 2.3 - A lot of 10 components contains 3 that are...Ch. 2.3 - A lot of 1000 components contains 300 that are...Ch. 2.3 - In a lot of n components, 30% are defective. Two...Ch. 2.3 - Prob. 26ECh. 2.3 - Each day, a weather forecaster predicts whether or...Ch. 2.3 - Items are inspected for flaws by two quality...Ch. 2.3 - Refer to Exercise 28. Assume that both inspectors...Ch. 2.3 - Refer to Example 2.26. Assume that the proportion...Ch. 2.3 - Sickle-cell anemia is an inherited disease in...Ch. 2.3 - A quality-control program at a plastic bottle...Ch. 2.3 - Refer to Example 2.26. a. If a man tests negative,...Ch. 2.3 - A system consists of four components connected as...Ch. 2.3 - A system consists of four components, connected as...Ch. 2.3 - A system contains two components, A and B,...Ch. 2.3 - A system contains two components, C and D,...Ch. 2.3 - If A and B are independent events, prove that the...Ch. 2.4 - Determine whether each of the following random...Ch. 2.4 - Computer chips often contain surface...Ch. 2.4 - A chemical supply company ships a certain solvent...Ch. 2.4 - Let X represent the number of tires with low air...Ch. 2.4 - A survey of cars on a certain stretch of highway...Ch. 2.4 - The element titanium has five stable occurring...Ch. 2.4 - A computer sends a packet of information along a...Ch. 2.4 - After manufacture, computer disks are tested for...Ch. 2.4 - On 100 different days, a traffic engineer counts...Ch. 2.4 - Microprocessing chips are randomly sampled one by...Ch. 2.4 - Refer to Exercise 10. Let Y be the number of chips...Ch. 2.4 - Three components are randomly sampled, one at a...Ch. 2.4 - Resistors labeled 100 have true resistances that...Ch. 2.4 - Elongation (in percent) of steel plates treated...Ch. 2.4 - The lifetime in months of a transistor in a...Ch. 2.4 - A process that manufactures piston rings produces...Ch. 2.4 - Refer to Exercise 16. A competing process produces...Ch. 2.4 - The lifetime, in years, of a certain type of pump...Ch. 2.4 - The level of impurity (in percent) in the product...Ch. 2.4 - The main bearing clearance (in mm) in a certain...Ch. 2.4 - The error in the length of a part (absolute value...Ch. 2.4 - Prob. 22ECh. 2.4 - The thickness of a washer (in mm) is a random...Ch. 2.4 - Particles are a major component of air pollution...Ch. 2.4 - The repair time (in hours) for a certain machine...Ch. 2.4 - The diameter of a rivet (in mm) is a random...Ch. 2.5 - Prob. 1ECh. 2.5 - The bottom of a cylindrical container has an area...Ch. 2.5 - The lifetime of a certain transistor in a certain...Ch. 2.5 - Two batteries, with voltages V1 and V2, are...Ch. 2.5 - A laminated item is composed of five layers. The...Ch. 2.5 - Two independent measurements are made of the...Ch. 2.5 - The molarity of a solute in solution is defined to...Ch. 2.5 - A machine that fills bottles with a beverage has a...Ch. 2.5 - The four sides of a picture frame consist of two...Ch. 2.5 - A gas station earns 2.60 in revenue for each...Ch. 2.5 - A certain commercial jet plane uses a mean of 0.15...Ch. 2.5 - Prob. 12ECh. 2.5 - In the article An Investigation of the...Ch. 2.5 - Prob. 14ECh. 2.5 - Prob. 15ECh. 2.5 - The thickness X of a wooden shim (in mm) has...Ch. 2.5 - Prob. 17ECh. 2.5 - Prob. 18ECh. 2.6 - In a certain community, levels of air pollution...Ch. 2.6 - Prob. 2ECh. 2.6 - Refer to Exercise 1. a. Find the conditional...Ch. 2.6 - Prob. 4ECh. 2.6 - Refer to Exercise 4. The total number of...Ch. 2.6 - Refer to Exercise 4. a. Find the conditional...Ch. 2.6 - Refer to Exercise 4. Assume that the cost of...Ch. 2.6 - The number of customers in line at a supermarket...Ch. 2.6 - Prob. 9ECh. 2.6 - Refer to Exercise 9. a. Find the mean of the total...Ch. 2.6 - Refer to Exercise 9. a. Find the conditional...Ch. 2.6 - Prob. 12ECh. 2.6 - Refer to Exercise 12. Let Z = X + Y represent the...Ch. 2.6 - Refer to Exercise 12. Assume that the cost of an...Ch. 2.6 - Automobile engines and transmissions are produced...Ch. 2.6 - Prob. 16ECh. 2.6 - Prob. 17ECh. 2.6 - A production facility contains two machines that...Ch. 2.6 - Prob. 19ECh. 2.6 - Prob. 20ECh. 2.6 - The lifetime of a certain component, in years, has...Ch. 2.6 - Prob. 22ECh. 2.6 - An investor has 100 to invest, and two investments...Ch. 2.6 - Prob. 24ECh. 2.6 - Let R denote the resistance of a resistor that is...Ch. 2.6 - Prob. 26ECh. 2.6 - Prob. 27ECh. 2.6 - Prob. 28ECh. 2.6 - Let X and Y be jointly distributed random...Ch. 2.6 - Prob. 30ECh. 2.6 - Prob. 31ECh. 2.6 - Prob. 32ECh. 2.6 - Prob. 33ECh. 2 - A system consists of four components connected as...Ch. 2 - A fair coin is tossed until a head appears. What...Ch. 2 - Silicon wafers are used in the manufacture of...Ch. 2 - Two production lines are used to pack sugar into 5...Ch. 2 - Prob. 5SECh. 2 - In a certain type of automobile engine, the...Ch. 2 - An electronic message consists of a string of bits...Ch. 2 - The reading given by a thermometer calibrated in...Ch. 2 - Two dice are rolled. Given that two different...Ch. 2 - In a lot of 10 components, 2 are sampled at random...Ch. 2 - Prob. 11SECh. 2 - Prob. 12SECh. 2 - A snowboard manufacturer has three plants, one in...Ch. 2 - The article Traps in Mineral ValuationsProceed...Ch. 2 - Six new graduates are hired by an engineering...Ch. 2 - Prob. 16SECh. 2 - Let X and Y be independent random variables with x...Ch. 2 - Prob. 18SECh. 2 - Prob. 19SECh. 2 - Prob. 20SECh. 2 - Prob. 21SECh. 2 - A certain plant runs three shifts per day. Of all...Ch. 2 - Prob. 23SECh. 2 - Prob. 24SECh. 2 - Prob. 25SECh. 2 - A stock solution of hydrochloric acid (HC1)...Ch. 2 - Prob. 27SECh. 2 - Prob. 28SECh. 2 - A penny and a nickel are tossed. The penny has...Ch. 2 - Prob. 30SECh. 2 - Prob. 31SECh. 2 - Prob. 32SECh. 2 - Prob. 33SECh. 2 - Prob. 34SECh. 2 - Blood is taken from each of n individuals to be...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, statistics and related others by exploring similar questions and additional content below.Similar questions
- 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…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_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_forward
- Using the accompanying Home Market Value data and associated regression line, Market ValueMarket Valueequals=$28,416+$37.066×Square Feet, compute the errors associated with each observation using the formula e Subscript ieiequals=Upper Y Subscript iYiminus−ModifyingAbove Upper Y with caret Subscript iYi and construct a frequency distribution and histogram. LOADING... Click the icon to view the Home Market Value data. Question content area bottom Part 1 Construct a frequency distribution of the errors, e Subscript iei. (Type whole numbers.) Error Frequency minus−15 comma 00015,000less than< e Subscript iei less than or equals≤minus−10 comma 00010,000 0 minus−10 comma 00010,000less than< e Subscript iei less than or equals≤minus−50005000 5 minus−50005000less than< e Subscript iei less than or equals≤0 21 0less than< e Subscript iei less than or equals≤50005000 9…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 Overhead Costs Billable Hours345000 3000385000 4000410000 5000462000 6000530000 7000545000 8000arrow_forwardUsing the accompanying Home Market Value data and associated regression line, Market ValueMarket Valueequals=$28,416plus+$37.066×Square Feet, compute the errors associated with each observation using the formula e Subscript ieiequals=Upper Y Subscript iYiminus−ModifyingAbove Upper Y with caret Subscript iYi and construct a frequency distribution and histogram. Square Feet Market Value1813 911001916 1043001842 934001814 909001836 1020002030 1085001731 877001852 960001793 893001665 884001852 1009001619 967001690 876002370 1139002373 1131001666 875002122 1161001619 946001729 863001667 871001522 833001484 798001589 814001600 871001484 825001483 787001522 877001703 942001485 820001468 881001519 882001518 885001483 765001522 844001668 909001587 810001782 912001483 812001519 1007001522 872001684 966001581 86200arrow_forward
- For a binary asymmetric channel with Py|X(0|1) = 0.1 and Py|X(1|0) = 0.2; PX(0) = 0.4 isthe probability of a bit of “0” being transmitted. X is the transmitted digit, and Y is the received digit.a. Find the values of Py(0) and Py(1).b. What is the probability that only 0s will be received for a sequence of 10 digits transmitted?c. What is the probability that 8 1s and 2 0s will be received for the same sequence of 10 digits?d. What is the probability that at least 5 0s will be received for the same sequence of 10 digits?arrow_forwardV2 360 Step down + I₁ = I2 10KVA 120V 10KVA 1₂ = 360-120 or 2nd Ratio's V₂ m 120 Ratio= 360 √2 H I2 I, + I2 120arrow_forwardQ2. [20 points] An amplitude X of a Gaussian signal x(t) has a mean value of 2 and an RMS value of √(10), i.e. square root of 10. Determine the PDF of x(t).arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Glencoe Algebra 1, Student Edition, 9780079039897...AlgebraISBN:9780079039897Author:CarterPublisher:McGraw Hill
Holt Mcdougal Larson Pre-algebra: Student Edition...AlgebraISBN:9780547587776Author:HOLT MCDOUGALPublisher:HOLT MCDOUGAL
Glencoe Algebra 1, Student Edition, 9780079039897...
Algebra
ISBN:9780079039897
Author:Carter
Publisher:McGraw Hill
Holt Mcdougal Larson Pre-algebra: Student Edition...
Algebra
ISBN:9780547587776
Author:HOLT MCDOUGAL
Publisher:HOLT MCDOUGAL
Statistics 4.1 Point Estimators; Author: Dr. Jack L. Jackson II;https://www.youtube.com/watch?v=2MrI0J8XCEE;License: Standard YouTube License, CC-BY
Statistics 101: Point Estimators; Author: Brandon Foltz;https://www.youtube.com/watch?v=4v41z3HwLaM;License: Standard YouTube License, CC-BY
Central limit theorem; Author: 365 Data Science;https://www.youtube.com/watch?v=b5xQmk9veZ4;License: Standard YouTube License, CC-BY
Point Estimate Definition & Example; Author: Prof. Essa;https://www.youtube.com/watch?v=OTVwtvQmSn0;License: Standard Youtube License
Point Estimation; Author: Vamsidhar Ambatipudi;https://www.youtube.com/watch?v=flqhlM2bZWc;License: Standard Youtube License