Introduction to Statistical Quality Control
7th Edition
ISBN: 9781118146811
Author: Montgomery, Douglas C.
Publisher: John Wiley & Sons Inc
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Chapter 3, Problem 61E
Derive the
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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.)
The 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…
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…
Chapter 3 Solutions
Introduction to Statistical Quality Control
Ch. 3 - The content of liquid detergent bottles is being...Ch. 3 - The bore diameters of eight randomly selected...Ch. 3 - The service time in minutes from admit to...Ch. 3 - The Really Cool Clothing Company sells its...Ch. 3 - The nine measurements that follow are furnace...Ch. 3 - Consider the furnace temperature data in Exercise...Ch. 3 - Yield strengths of circular tubes with end caps...Ch. 3 - The time to failure in hours of an electronic...Ch. 3 - The data shown in Table 3E.2 are chemical process...Ch. 3 - An article in Quality Engineering (Vol. 4, 1992,...
Ch. 3 - Construct and interpret a normal probability plot...Ch. 3 - Construct and interpret a normal probability plot...Ch. 3 - Construct a normal probability plot of the failure...Ch. 3 - Construct a normal probability plot of the...Ch. 3 - Consider the viscosity data in Exercise 3.10....Ch. 3 - Table 3E.4 contains 20 observations on cycles to...Ch. 3 - An important quality characteristic of water is...Ch. 3 - Consider the outpatient service times in Exercise...Ch. 3 - Consider the call handling limes in Exercise 3.4....Ch. 3 - Consider the viscosity data in Exercise 3.10....Ch. 3 - Reconsider the yield data in Exercise 3.9....Ch. 3 - Consider the concentration of suspended solids...Ch. 3 - Consider the chemical process yield data in...Ch. 3 - Consider the chemical process yield data in...Ch. 3 - Construct a box plot for the data in Exercise 3.1.Ch. 3 - Construct a box plot for the data in Exercise 3.2.Ch. 3 - Suppose that two fair dice are tossed and the...Ch. 3 - Find the mean and variance of the random variable...Ch. 3 - A mechatronic assembly is subjected to a final...Ch. 3 - The probability distribution of x is f(x) = kex, 0...Ch. 3 - The random variable x takes on the values 1, 2, or...Ch. 3 - The probability distribution of the discrete...Ch. 3 - A manufacturer of electronic calculators offers a...Ch. 3 - The net contents in ounces of canned soup is a...Ch. 3 - A production process operates with 1 %...Ch. 3 - Continuation of Exercise 3.35. Consider the...Ch. 3 - A random sample of 50 units is drawn from a...Ch. 3 - A sample of 100 units is selected from a...Ch. 3 - Suppose that 10% of the adult population has blood...Ch. 3 - Patients arriving at an outpatient clinic are...Ch. 3 - A stock brokerage has four computers that are used...Ch. 3 - A computer system uses passwords consisting of the...Ch. 3 - An electronic component for a medical X-ray unit...Ch. 3 - A lot of size N = 30 contains three nonconforming...Ch. 3 - A textbook has 500 pages on which typographical...Ch. 3 - Surface-finish defects in a small electric...Ch. 3 - Glass bottles are formed by pouring molten glass...Ch. 3 - The billing department of a major credit card...Ch. 3 - A production process operates in one of two...Ch. 3 - An inspector is looking for nonconforming welds in...Ch. 3 - The tensile strength of a metal part is normally...Ch. 3 - The output voltage of a power supply is normally...Ch. 3 - Continuation of Exercise 3.52. Reconsider the...Ch. 3 - If x is normally distributed with mean and...Ch. 3 - The life of an automotive battery is normally...Ch. 3 - A lightbulb has a normally distributed light...Ch. 3 - Derive the mean and variance of the binomial...Ch. 3 - Derive the mean and variance of the Poisson...Ch. 3 - Derive the mean and variance of the exponential...Ch. 3 - Derive the mean and variance of the geometric...
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- The 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_forwarda. Find the value of A.b. Find pX(x) and py(y).c. Find pX|y(x|y) and py|X(y|x)d. Are x and y independent? Why or why not?arrow_forward
- The PDF of an amplitude X of a Gaussian signal x(t) is given by:arrow_forwardThe PDF of a random variable X is given by the equation in the picture.arrow_forwardFor 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_forward
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- 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…arrow_forwardProblem 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…arrow_forwardThe scores of 8 students on the midterm exam and final exam were as follows. Student Midterm Final Anderson 98 89 Bailey 88 74 Cruz 87 97 DeSana 85 79 Erickson 85 94 Francis 83 71 Gray 74 98 Harris 70 91 Find the value of the (Spearman's) rank correlation coefficient test statistic that would be used to test the claim of no correlation between midterm score and final exam score. Round your answer to 3 places after the decimal point, if necessary. Test statistic: rs =arrow_forward
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