EBK MATLAB: AN INTRODUCTION WITH APPLIC
6th Edition
ISBN: 8220103113663
Author: GILAT
Publisher: YUZU
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Textbook Question
Chapter 3, Problem 31P
Create a
(a) A.^A(b) A.*A (c) A*A-1
(d) A./A (e) det(A) (f)inv(A)
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In a network with 12 links, one of the links has failed. The failed link is randomlylocated. An electrical engineer tests the links one by one until the failed link is found.a. What is the probability that the engineer will find the failed link in the first test?b. What is the probability that the engineer will find the failed link in five tests?Note: You should assume that for Part b, the five tests are done consecutively.
Problem 3. Pricing a multi-stock option the Margrabe formula
The purpose of this problem is to price a swap option in a 2-stock model, similarly as
what we did in the example in the lectures. We consider a two-dimensional Brownian
motion given by W₁ = (W(¹), W(2)) on a probability space (Q, F,P). Two stock prices
are modeled by the following equations:
dX
=
dY₁ =
X₁ (rdt+
rdt+0₁dW!)
(²)),
Y₁ (rdt+dW+0zdW!"),
with Xo
xo and Yo =yo. This corresponds to the multi-stock model studied in class,
but with notation (X+, Y₁) instead of (S(1), S(2)). Given the model above, the measure
P is already the risk-neutral measure (Both stocks have rate of return r). We write
σ = 0₁+0%. We consider a swap option, which gives you the right, at time T, to
exchange one share of X for one share of Y. That is, the option has payoff
F=(Yr-XT).
(a) We first assume that r = 0 (for questions (a)-(f)). Write an explicit expression for
the process Xt.
Reminder before proceeding to question (b): Girsanov's theorem…
Problem 1. Multi-stock model
We consider a 2-stock model similar to the one studied in class. Namely, we consider
=
S(1)
S(2)
=
S(¹) exp (σ1B(1) + (M1 - 0/1 )
S(²) exp (02B(2) + (H₂-
M2
where (B(¹) ) +20 and (B(2) ) +≥o are two Brownian motions, with
t≥0
Cov (B(¹), B(2)) = p min{t, s}.
"
The purpose of this problem is to prove that there indeed exists a 2-dimensional Brownian
motion (W+)+20 (W(1), W(2))+20 such that
=
S(1)
S(2)
=
=
S(¹) exp (011W(¹) + (μ₁ - 01/1) t)
롱)
S(²) exp (021W (1) + 022W(2) + (112 - 03/01/12) t).
where σ11, 21, 22 are constants to be determined (as functions of σ1, σ2, p).
Hint: The constants will follow the formulas developed in the lectures.
(a) To show existence of (Ŵ+), first write the expression for both W. (¹) and W (2)
functions of (B(1), B(²)).
as
(b) Using the formulas obtained in (a), show that the process (WA) is actually a 2-
dimensional standard Brownian motion (i.e. show that each component is normal,
with mean 0, variance t, and that their…
Chapter 3 Solutions
EBK MATLAB: AN INTRODUCTION WITH APPLIC
Ch. 3 - Prob. 1PCh. 3 - For the function y=x4ex, calculate the value of y...Ch. 3 - For the function y=(x+yx+3)(1+2x2)x3 , calculate...Ch. 3 - For the function y=4sinx+6(cos2x+sinx)2 ,...Ch. 3 - The radius, r, of a sphere can be calculated from...Ch. 3 - Prob. 6PCh. 3 - The remaining loan balance, B, of a fixed payment...Ch. 3 - Prob. 8PCh. 3 - Prob. 9PCh. 3 - The angle between two vectors u1=x1i+y1j+z1k and...
Ch. 3 - The following vector is defined in MATLAB: d=[2 4...Ch. 3 - The following two vectors are defined in MATLAB:...Ch. 3 - Define the vector v= [1 3 5 7]. Then use the...Ch. 3 - Define the vector v=[5 4 3 2]. Then use the vector...Ch. 3 - Define x and y as the vectors x= [0.5, 1, 1.5, 2,...Ch. 3 - Define r and s as scalars r = 1.6 × 103 and s =...Ch. 3 - The area of a triangle ABC can be calculated by...Ch. 3 - Prob. 18PCh. 3 - The center of mass, ( x , y, z). of n particles...Ch. 3 - Prob. 20PCh. 3 - The maximum distance s and the maximum height h...Ch. 3 - Use MATLAB to show that the sum of the infinite...Ch. 3 - Use MATLAB to show that the sum of the infinite...Ch. 3 - The natural exponential function can be expressed...Ch. 3 - Show that limx/3sin(x/3)4cos2x1=36 . Do this by...Ch. 3 - Show that limx05sin(6x)4x=7.5. Do this by first...Ch. 3 - The Hazen Williams equation can be used to...Ch. 3 - The monthly lease payment. Pmt, of a new car can...Ch. 3 - Create the following three matrices: A= 537206489...Ch. 3 - Use the matrics A, B, and C from the previous...Ch. 3 - Create a 33 matrix A having random integer values...Ch. 3 - The magic square is an arrangement of numbers in a...Ch. 3 - Solve the following system of three linear...Ch. 3 - Solve the following system of six linear...Ch. 3 - A football stadium has 100.000 seats. In a game...Ch. 3 - A food company manufactures five types of 8-oz...Ch. 3 - The electrical circuit shown consists of resistors...
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