Mathematics: A Discrete Introduction
3rd Edition
ISBN: 9780840049421
Author: Edward A. Scheinerman
Publisher: Cengage Learning
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Chapter 3, Problem 2ST
(a)
To determine
To describe:The set of people
(b)
To determine
To describe: The set of people
(c)
To determine
To find: The properties among reflexive, symmetric, irreflexive, anti-symmetric and transitive that is satisfied by
(d)
To determine
To describe: The relation
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55, 60, 64, 72, 73, 75, 77, 81, 83, 91, 91, 92\ 55,\ 60,\ 64,\ 72,\ 73,\ 75,\ 77,\ 81,\ 83,\ 91,\ 91,\ 92 55, 60, 64, 72, 73, 75, 77, 81, 83, 91, 91, 92
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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?
Chapter 3 Solutions
Mathematics: A Discrete Introduction
Ch. 3.14 - Write the following relations on the set 1,2,3,4,5...Ch. 3.14 - Prob. 14.2ECh. 3.14 - Prob. 14.3ECh. 3.14 - For each of the following relations on the set of...Ch. 3.14 - Prob. 14.5ECh. 3.14 - Prob. 14.6ECh. 3.14 - Prob. 14.7ECh. 3.14 - Prob. 14.8ECh. 3.14 - Prob. 14.9ECh. 3.14 - Prob. 14.10E
Ch. 3.14 - Prob. 14.11ECh. 3.14 - Prob. 14.12ECh. 3.14 - Prob. 14.13ECh. 3.14 - Prob. 14.14ECh. 3.14 - Prove: A relation R on a set A is antisymmetric if...Ch. 3.14 - Give an example of a relation on a set that is...Ch. 3.14 - Drawing pictures of relations. Pictures of...Ch. 3.15 - Prob. 15.1ECh. 3.15 - Prob. 15.2ECh. 3.15 - Prob. 15.3ECh. 3.15 - Prob. 15.4ECh. 3.15 - Prove: If a is an integer, then aa (mod 2).Ch. 3.15 - Prob. 15.6ECh. 3.15 - For each equivalence relation below, find the...Ch. 3.15 - Prob. 15.8ECh. 3.15 - Prob. 15.9ECh. 3.15 - Prob. 15.10ECh. 3.15 - Suppose R is an equivalence relation on a set A...Ch. 3.15 - Prob. 15.12ECh. 3.15 - Prob. 15.13ECh. 3.15 - Prob. 15.14ECh. 3.15 - Prob. 15.15ECh. 3.15 - Prob. 15.16ECh. 3.15 - Prob. 15.17ECh. 3.16 - Prob. 16.1ECh. 3.16 - How many different anagrams (including nonsensical...Ch. 3.16 - Prob. 16.3ECh. 3.16 - Prob. 16.4ECh. 3.16 - Prob. 16.5ECh. 3.16 - Prob. 16.6ECh. 3.16 - Prob. 16.7ECh. 3.16 - Prob. 16.8ECh. 3.16 - Prob. 16.9ECh. 3.16 - Prob. 16.10ECh. 3.16 - Prob. 16.11ECh. 3.16 - Prob. 16.12ECh. 3.16 - Prob. 16.13ECh. 3.16 - Prob. 16.14ECh. 3.16 - How many partitions, with exactly two parts, can...Ch. 3.16 - Prob. 16.16ECh. 3.16 - Prob. 16.17ECh. 3.16 - Prob. 16.18ECh. 3.16 - Prob. 16.19ECh. 3.16 - Prob. 16.20ECh. 3.17 - Prob. 17.1ECh. 3.17 - Prob. 17.2ECh. 3.17 - Prob. 17.3ECh. 3.17 - Prob. 17.4ECh. 3.17 - Prob. 17.5ECh. 3.17 - Prob. 17.6ECh. 3.17 - Prob. 17.7ECh. 3.17 - Prob. 17.8ECh. 3.17 - Prob. 17.9ECh. 3.17 - Prob. 17.10ECh. 3.17 - Prob. 17.11ECh. 3.17 - Prob. 17.12ECh. 3.17 - Prob. 17.13ECh. 3.17 - Prob. 17.14ECh. 3.17 - Prob. 17.15ECh. 3.17 - Consider the following formula: kkn=nk1n1. Give...Ch. 3.17 - Prob. 17.17ECh. 3.17 - Prob. 17.18ECh. 3.17 - Prob. 17.19ECh. 3.17 - Prob. 17.20ECh. 3.17 - Prob. 17.21ECh. 3.17 - Prob. 17.22ECh. 3.17 - Prob. 17.23ECh. 3.17 - Prob. 17.24ECh. 3.17 - Prob. 17.25ECh. 3.17 - Prove: 0nnn+1nn1n+2nn2n++n1n1n+nn0n=n2n.Ch. 3.17 - How many Social Security numbers (see Exercise...Ch. 3.17 - Prob. 17.28ECh. 3.17 - Prob. 17.29ECh. 3.17 - Prob. 17.30ECh. 3.17 - Prob. 17.31ECh. 3.17 - Prob. 17.32ECh. 3.17 - Prob. 17.33ECh. 3.17 - Prob. 17.34ECh. 3.17 - Prob. 17.35ECh. 3.17 - Prob. 17.36ECh. 3.17 - Prob. 17.37ECh. 3.18 - Prob. 18.1ECh. 3.18 - Prob. 18.2ECh. 3.18 - Prob. 18.3ECh. 3.18 - Prob. 18.4ECh. 3.18 - Prob. 18.5ECh. 3.18 - Prob. 18.6ECh. 3.18 - Prob. 18.7ECh. 3.18 - Prob. 18.8ECh. 3.18 - Prob. 18.9ECh. 3.18 - Prob. 18.10ECh. 3.18 - Prob. 18.11ECh. 3.18 - Prob. 18.12ECh. 3.18 - Prob. 18.13ECh. 3.18 - Prob. 18.14ECh. 3.18 - Prob. 18.15ECh. 3.18 - Prob. 18.16ECh. 3.18 - Prob. 18.17ECh. 3.18 - Prob. 18.18ECh. 3.18 - Prob. 18.19ECh. 3.19 - Prob. 19.1ECh. 3.19 - Prob. 19.2ECh. 3.19 - Prob. 19.3ECh. 3.19 - Prob. 19.4ECh. 3.19 - How many five-letter words can you make in which...Ch. 3.19 - This problem asks you to give two proofs for...Ch. 3.19 - Prob. 19.7ECh. 3.19 - Prob. 19.8ECh. 3.19 - Prob. 19.9ECh. 3.19 - Prob. 19.10ECh. 3.19 - Prob. 19.11ECh. 3.19 - Prob. 19.12ECh. 3 - Prob. 1STCh. 3 - Prob. 2STCh. 3 - Prob. 3STCh. 3 - Prob. 4STCh. 3 - Prob. 5STCh. 3 - Prob. 6STCh. 3 - Prob. 7STCh. 3 - Prob. 8STCh. 3 - Prob. 9STCh. 3 - Prob. 10STCh. 3 - Prob. 11STCh. 3 - Prob. 12STCh. 3 - Prob. 13STCh. 3 - Prob. 14STCh. 3 - Prob. 15STCh. 3 - Prob. 16STCh. 3 - Prob. 17STCh. 3 - Prob. 18STCh. 3 - Prob. 19STCh. 3 - Prob. 20STCh. 3 - Prob. 21STCh. 3 - Prob. 22ST
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