An Introduction to Statistical Methods and Data Analysis
7th Edition
ISBN: 9781305269477
Author: R. Lyman Ott, Micheal T. Longnecker
Publisher: Cengage Learning
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Textbook Question
Chapter 2.8, Problem 12E
For each of the following situations, decide what sampling method you would use. Provide an explanation of why you selected a particular method of sampling.
- a. A large automotive company wants to upgrade the software on its notebook computers. A survey of 1,500 employees will request information concerning frequently used software applications such as spreadsheets, word processing, e-mail, Internet access, statistical data processing, and so on. A list of employees with their job categories is available.
- b. A hospital is interested in what types of patients make use of their emergency room facilities. It is decided to sample 10% of all patients arriving at the emergency room for the next month and record their demographic information along with type of service required, the amount of time the patient waits prior to examination, and the amount of time needed for the doctor to assess the patient’s problem.
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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
An Introduction to Statistical Methods and Data Analysis
Ch. 2.8 - In the following descriptions of a study,...Ch. 2.8 - In the following descriptions of a study,...Ch. 2.8 - A news report states that minority children who...Ch. 2.8 - A study was conducted to determine if the...Ch. 2.8 - Prob. 5ECh. 2.8 - A large auto parts supplier with distribution...Ch. 2.8 - The circuit judges in a rural county are...Ch. 2.8 - Prob. 8ECh. 2.8 - Time magazine, in an article in the late 1950s,...Ch. 2.8 - The New York City school district is planning a...
Ch. 2.8 - A professional society, with a membership of...Ch. 2.8 - For each of the following situations, decide what...Ch. 2.8 - For each of the following situations, decide what...Ch. 2.8 - The process engineer designed a study to evaluate...Ch. 2.8 - Prob. 15ECh. 2.8 - In the descriptions of experiments given in...Ch. 2.8 - In the descriptions of experiments given in...Ch. 2.8 - In the descriptions of experiments given in...Ch. 2.8 - A research specialist for a large seafood company...Ch. 2.8 - In Exercises 2.20–2.22, identify whether the...Ch. 2.8 - In Exercises 2.202.22, identify whether the design...Ch. 2.8 - In Exercises 2.20–2.22, identify whether the...Ch. 2.8 - A bakery wants to evaluate new recipes for carrot...Ch. 2.8 - Prob. 24SECh. 2.8 - Prob. 25SECh. 2.8 - Prob. 26SECh. 2.8 - Prob. 27SECh. 2.8 - Prob. 28SECh. 2.8 - Prob. 29SECh. 2.8 - A forester wants to estimate the total number of...Ch. 2.8 - A transportation researcher is funded to estimate...Ch. 2.8 - The department of agriculture in a midwestern...Ch. 2.8 - Prob. 33SECh. 2.8 - A Yankelovich, Skelly, and White poll taken in the...
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- 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
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