MATHEMATICS WITH APPL....-ACCESS
12th Edition
ISBN: 9780135240687
Author: Lial
Publisher: PEARSON
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Chapter 3.1, Problem 24E
(a)
To determine
To calculate: The value of
(b)
To determine
To calculate: The value of
(c)
To determine
To calculate: The value of
(d)
To determine
To calculate: The value of
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Question 2. An American option on a stock has payoff given by F = f(St) when it is exercised
at time t. We know that the function f is convex. A person claims that because of convexity,
it is optimal to exercise at expiration T. Do you agree with them?
Question 4. We consider a CRR model with So == 5 and up and down factors u = 1.03 and
d = 0.96. We consider the interest rate r = 4% (over one period). Is this a suitable CRR
model? (Explain your answer.)
Question 3. We want to price a put option with strike price K and expiration T. Two financial
advisors estimate the parameters with two different statistical methods: they obtain the same
return rate μ, the same volatility σ, but the first advisor has interest r₁ and the second advisor
has interest rate r2 (r1>r2). They both use a CRR model with the same number of periods to
price the option. Which advisor will get the larger price? (Explain your answer.)
Chapter 3 Solutions
MATHEMATICS WITH APPL....-ACCESS
Ch. 3.1 - Checkpoint 1
Find the domain and range of the...Ch. 3.1 - Checkpoint 2
Do the following define...Ch. 3.1 - Checkpoint 3
Do the following define y as a...Ch. 3.1 - Checkpoint 4
Give the domain of each...Ch. 3.1 - Checkpoint 5
Let Find the...Ch. 3.1 - Prob. 6CPCh. 3.1 - Prob. 7CPCh. 3.1 - For each of the following rules, state whether it...Ch. 3.1 -
For each of the following rules, state whether it...Ch. 3.1 - For each of the following rules, state whether it...
Ch. 3.1 - For each of the following rules, state whether it...Ch. 3.1 - For each of the following rules, state whether it...Ch. 3.1 - For each of the following rules, state whether it...Ch. 3.1 - For each of the following rules, state whether it...Ch. 3.1 - For each of the following rules, state whether it...Ch. 3.1 - For each of the following rules, state whether it...Ch. 3.1 - For each of the following rules, state whether it...Ch. 3.1 - State the domain of each function. (See Example...Ch. 3.1 - State the domain of each function. (See Example...Ch. 3.1 - Prob. 13ECh. 3.1 - State the domain of each function. (See Example...Ch. 3.1 - State the domain of each function. (See Example...Ch. 3.1 - State the domain of each function. (See Example...Ch. 3.1 - State the domain of each function. (See Example...Ch. 3.1 - State the domain of each function. (See Example...Ch. 3.1 - State the domain of each function (See Example...Ch. 3.1 - State the domain of each function. (See Example...Ch. 3.1 - State the domain of each function. (See Example...Ch. 3.1 -
State the domain of each function. (See Example...Ch. 3.1 - For each of the following functions,...Ch. 3.1 - For each of the following functions,...Ch. 3.1 - For each of the following functions,...Ch. 3.1 - For each of the following functions,...Ch. 3.1 - Prob. 28ECh. 3.1 - For each of the following functions, find
(a) (b)...Ch. 3.1 - Prob. 29ECh. 3.1 - Prob. 30ECh. 3.1 - Prob. 31ECh. 3.1 - For each of the following functions, find
(a) (b)...Ch. 3.1 - For each of the following functions, find
(a) (b)...Ch. 3.1 - For each of the following functions, find
(a) (b)...Ch. 3.1 - For each of the following functions, find
(a)...Ch. 3.1 - For each of the following functions, find
(a)....Ch. 3.1 - For each of the following functions, find
(a) (b)...Ch. 3.1 - For each of the following functions, find
(a) (b)...Ch. 3.1 - For each of the following functions, find
(See...Ch. 3.1 - For each of the following functions, find f(p);...Ch. 3.1 - For each of the following functions, find
(a) (b)...Ch. 3.1 - For each of the following functions, find
(a) (b)...Ch. 3.1 - For each of the following functions, find the...Ch. 3.1 - For each of the following functions, find the...Ch. 3.1 - For each of the following functions, find the...Ch. 3.1 - For each of the following functions, find the...Ch. 3.1 - Use a calculator to work these exercises. (See...Ch. 3.1 -
Use a calculator to work these exercises. (See...Ch. 3.1 -
Use a calculator to work these exercises. (See...Ch. 3.1 - Use a calculator to work these exercises. (See...Ch. 3.1 - Use a calculator to work these exercises. (See...Ch. 3.1 -
Use a calculator to work these exercises. (See...Ch. 3.1 -
Use a calculator to work these exercises. (See...Ch. 3.1 -
Use a calculator to work these exercises. (See...Ch. 3.1 - Prob. 55ECh. 3.1 - Use a calculator to work these exercises. (See...Ch. 3.1 - Use a calculator to work these exercises. (See...Ch. 3.1 - Prob. 58ECh. 3.1 - Use the table feature of a graphing calculator to...Ch. 3.1 - Use the table feature of a graphing calculator to...Ch. 3.2 - Checkpoint 1 Graph g(x)=35x.Ch. 3.2 -
Checkpoint 2
Graph
Ch. 3.2 - Checkpoint 3 Graph f(x)={2x3ifx1x2ifx1.Ch. 3.2 - Checkpoint 4 Graph each function. f(x)=|x4|...Ch. 3.2 - Prob. 5CPCh. 3.2 - Checkpoint 6 Graph y=[12x+1].Ch. 3.2 - Prob. 7CPCh. 3.2 - Prob. 8CPCh. 3.2 - Prob. 9CPCh. 3.2 - Graph each function. (See Examples 1–4.)
1.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
2.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
3.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
4.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
5.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
6.
Ch. 3.2 - Prob. 7ECh. 3.2 - Prob. 8ECh. 3.2 - Prob. 9ECh. 3.2 - Graph each function. (See Examples 1–4.)
10.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
11.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
12.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
13.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
14.
Ch. 3.2 - Graph each function. (See Examples 1–4.)
15.
Ch. 3.2 - Prob. 16ECh. 3.2 - Prob. 17ECh. 3.2 - Prob. 18ECh. 3.2 - Prob. 19ECh. 3.2 - Prob. 20ECh. 3.2 - Prob. 21ECh. 3.2 - Postal Rates Theaccompanying table gives rates...Ch. 3.2 - Prob. 23ECh. 3.2 - Prob. 24ECh. 3.2 - Graph each function. (See Examples 7–9.)
31.
Ch. 3.2 - Graph each function. (See Examples 7–9.)
32.
Ch. 3.2 - Determine whether each graph is a graph of a...Ch. 3.2 - Determine whether each graph is a graph of a...Ch. 3.2 - Determine whether each graph is a graph of a...Ch. 3.2 - Determine whether each graph is a graph of a...Ch. 3.2 - Determine whether each graph is a graph of a...Ch. 3.2 - Determine whether each graph is a graph of a...Ch. 3.2 - Use a graphing calculator or other technology to...Ch. 3.2 - Prob. 34ECh. 3.2 - Prob. 35ECh. 3.2 - Prob. 36ECh. 3.2 - Work these exercise. (See Examples 2, 3, 10, and...Ch. 3.2 - Work these exercise. (See Examples 2, 3, 10, and...Ch. 3.2 - Work these exercises. (See Examples 2, 3, 10, and...Ch. 3.2 - See Examples 2, 3, 10 and 11 as you do Exercises...Ch. 3.2 - Prob. 41ECh. 3.2 - Work these exercises. (See Examples 2, 3, 10, and...Ch. 3.2 - Work these exercises. (See Examples 2, 3, 10, and...Ch. 3.2 - Work these exercises. (See Examples 2, 3, 10, and...Ch. 3.2 - Work these exercises. (See Examples 2, 3, 10, and...Ch. 3.2 - Work these exercises. (See Examples 2, 3, 10, and...Ch. 3.2 - Prob. 48ECh. 3.2 - 59. Business Sarah Hendrickson needs to rent a van...Ch. 3.2 - Prob. 50ECh. 3.2 - Prob. 51ECh. 3.2 - Prob. 52ECh. 3.3 - Checkpoint 1
The total cost of producing 10...Ch. 3.3 - Prob. 2CPCh. 3.3 - Prob. 3CPCh. 3.3 - Prob. 4CPCh. 3.3 - Prob. 5CPCh. 3.3 - Prob. 6CPCh. 3.3 - Checkpoint 7
Suppose price and quantity demanded...Ch. 3.3 - Prob. 8CPCh. 3.3 - Business Write a cost function for each of the...Ch. 3.3 - Prob. 2ECh. 3.3 - Prob. 3ECh. 3.3 - Prob. 4ECh. 3.3 - Business Assume that each of the given situations...Ch. 3.3 - Prob. 6ECh. 3.3 - Business Assume that each of the given situations...Ch. 3.3 - Prob. 8ECh. 3.3 - Prob. 9ECh. 3.3 - Prob. 10ECh. 3.3 - Prob. 11ECh. 3.3 - Business In Exercises 9–12, a cost function is...Ch. 3.3 - Business Work these exercises. (See Example...Ch. 3.3 - Prob. 14ECh. 3.3 - Business Work these exercises. (See Example...Ch. 3.3 - Business Work these exercises. (See Example...Ch. 3.3 - Prob. 17ECh. 3.3 - Business Work these problems. (See Example...Ch. 3.3 - Business Work these problems. (See Examples 2 and...Ch. 3.3 - 20. In deciding whether to set up a new...Ch. 3.3 - Business Work these problems. (See Example 5.)...Ch. 3.3 - Business Work these problems. (See Example 5.) Gas...Ch. 3.3 - Business Work these problems. (See Example...Ch. 3.3 - Prob. 24ECh. 3.3 - Prob. 25ECh. 3.3 - Prob. 26ECh. 3.3 - Prob. 27ECh. 3.3 - Prob. 29ECh. 3.3 - Prob. 30ECh. 3.3 - Prob. 31ECh. 3.3 - Prob. 32ECh. 3.3 - Prob. 33ECh. 3.3 - Prob. 34ECh. 3.3 - 35. The revenue (in millions of dollars) from the...Ch. 3.3 - Prob. 36ECh. 3.3 - Prob. 37ECh. 3.3 - Business Suppose you are the manager of a firm....Ch. 3.3 - Business Suppose you are the manager of a firm....Ch. 3.3 - Prob. 40ECh. 3.3 - Prob. 41ECh. 3.3 - Business Suppose you are the manager of a firm....Ch. 3.3 - Prob. 44ECh. 3.3 - Prob. 45ECh. 3.3 - Prob. 46ECh. 3.3 - Prob. 47ECh. 3.3 - Prob. 48ECh. 3.3 - Economics Work the following exercises. (See...Ch. 3.3 - Economics Work the following exercises. (See...Ch. 3.3 - 51. Let the supply and demand for bananas in cents...Ch. 3.3 - Economics Work the following exercises. (See...Ch. 3.3 - Prob. 53ECh. 3.3 - Prob. 54ECh. 3.4 - Checkpoint 1
Graph each quadratic...Ch. 3.4 - Prob. 2CPCh. 3.4 - Prob. 3CPCh. 3.4 - Prob. 4CPCh. 3.4 - Prob. 5CPCh. 3.4 - Prob. 6CPCh. 3.4 - Prob. 1ECh. 3.4 - Prob. 2ECh. 3.4 - The graph of each of the functions in Exercises...Ch. 3.4 - The graph of each of the functions in Exercises...Ch. 3.4 - Without graphing, determine the vertex of the...Ch. 3.4 - Without graphing, determine the vertex of the...Ch. 3.4 - Without graphing, determine the vertex of the...Ch. 3.4 - Without graphing, determine the vertex of the...Ch. 3.4 - Prob. 9ECh. 3.4 - Match each function with its graph, which is one...Ch. 3.4 - Prob. 11ECh. 3.4 - Prob. 12ECh. 3.4 - Prob. 13ECh. 3.4 - Prob. 14ECh. 3.4 - Prob. 15ECh. 3.4 - Prob. 16ECh. 3.4 - Find the rule of a quadratic function whose graph...Ch. 3.4 - Find the rule of a quadratic function whose graph...Ch. 3.4 - Prob. 19ECh. 3.4 - Prob. 20ECh. 3.4 - Without graphing, find the vertex of the parabola...Ch. 3.4 - Prob. 22ECh. 3.4 - Prob. 23ECh. 3.4 - Without graphing, find the vertex of the parabola...Ch. 3.4 - Without graphing, determine the x- and...Ch. 3.4 - Prob. 26ECh. 3.4 - Without graphing, determine the x- and...Ch. 3.4 - Without graphing, determine the x- and...Ch. 3.4 - Prob. 29ECh. 3.4 - Prob. 30ECh. 3.4 - Prob. 31ECh. 3.4 - Graph each parabola and find its vertex and axis...Ch. 3.4 - Work these problems. (See Example...Ch. 3.4 - Work these problems. (See Example 6.)
34. Souvenir...Ch. 3.4 - Work these problems. (See Example 6.) Nerve...Ch. 3.4 - Work these problems. (See Example 6.) Bullet...Ch. 3.4 - Work these problems. (See Example 6.) Automobile...Ch. 3.4 - Work these problems. (See Example...Ch. 3.4 - Use a calculator to work these...Ch. 3.4 - Use a calculator to work these...Ch. 3.4 - 41. Business Suppose the price p of widgets is...Ch. 3.4 - 42. Business The supply function for a commodity...Ch. 3.4 - Business Find the equilibrium quantity and...Ch. 3.4 - Business Find the equilibrium quantity and...Ch. 3.4 - Business Find the equilibrium quantity and...Ch. 3.4 - Business Find the equilibrium quantity and...Ch. 3.4 - Business The revenue function R(x) and the cost...Ch. 3.4 - Business The revenue function R(x) and the cost...Ch. 3.4 - Business The revenue function R(x) and the cost...Ch. 3.4 - Business The revenue function R(x) and the cost...Ch. 3.4 - Business A store owner finds that at a price of...Ch. 3.4 - Business A store owner finds that at a price of ...Ch. 3.4 - Business Work each problem. (See Example 8.)
53. A...Ch. 3.4 - Business Work each problem. (See Example 8.) The...Ch. 3.4 - Business Work each problem. (See Example 8.)
51. A...Ch. 3.4 - Business Work each problem. (See Example...Ch. 3.4 - Business Work each problem. (See Example 8.)
53. A...Ch. 3.4 - Business Work each problem. (See Example...Ch. 3.4 - Prob. 59ECh. 3.4 - Prob. 60ECh. 3.4 - Prob. 61ECh. 3.4 - Prob. 62ECh. 3.4 - Prob. 63ECh. 3.4 - Prob. 64ECh. 3.4 - Prob. 65ECh. 3.4 - Prob. 66ECh. 3.4 - Prob. 67ECh. 3.4 - Prob. 68ECh. 3.5 - Checkpoint 1
Graph
Ch. 3.5 - Checkpoint 2
Graph
Ch. 3.5 - Checkpoint 3
Find a viewing window on a graphing...Ch. 3.5 - Checkpoint 4
Multiply out the expression for in...Ch. 3.5 - Checkpoint 5
Graph
Ch. 3.5 - Graph each of the given polynomial functions. (See...Ch. 3.5 - Prob. 2ECh. 3.5 - Prob. 3ECh. 3.5 - Prob. 4ECh. 3.5 - In Exercises 5-8, state whether the graph could...Ch. 3.5 - In Exercises 5-8, state whether the graph could...Ch. 3.5 - In Exercises 5-8, state whether the graph could...Ch. 3.5 - In Exercises 5-8, state whether the graph could...Ch. 3.5 - In Exercises 9–14, match the given polynomial...Ch. 3.5 - In Exercises 9–14, match the given polynomial...Ch. 3.5 - In Exercises 9–14, match the given polynomial...Ch. 3.5 - In Exercises 9–14, match the given polynomial...Ch. 3.5 - In Exercises 9–14, match the given polynomial...Ch. 3.5 - In Exercises 9–14, match the given polynomial...Ch. 3.5 - Graph each of the given polynomial functions. (See...Ch. 3.5 - Graph each of the given polynomial functions. (See...Ch. 3.5 - Graph each of the given polynomial functions. (See...Ch. 3.5 - 18.
Graph each of the given polynomial functions....Ch. 3.5 - Graph each of the given polynomial functions. (See...Ch. 3.5 - Graph each of the given polynomial functions. (See...Ch. 3.5 - Work these exercises. Home Depot Revenue The...Ch. 3.5 - Work these exercises. Caterpillar Revenue The...Ch. 3.5 - Work these exercises. Home Depot Costs The cost...Ch. 3.5 - Work these exercises. Caterpillar Costs The cost...Ch. 3.5 - Work these exercises.
25. Home Depot Profit Find...Ch. 3.5 - Work these exercises. Caterpillar Profit Find the...Ch. 3.5 - Prob. 33ECh. 3.5 - Prob. 34ECh. 3.5 - Prob. 35ECh. 3.5 - Prob. 36ECh. 3.5 - Prob. 27ECh. 3.5 - In Exercises 27−31, use a calculator to evaluate...Ch. 3.5 - Prob. 29ECh. 3.5 - Polynomial Models Use a graphing calculator to do...Ch. 3.5 - Polynomial Models Use a graphing calculator to do...Ch. 3.5 - Prob. 32ECh. 3.6 - Checkpoint 1
Graph the following.
(a)
(b)
Ch. 3.6 - Prob. 2CPCh. 3.6 - Prob. 3CPCh. 3.6 - Prob. 4CPCh. 3.6 - Checkpoint 5
Rework Example 5 with the...Ch. 3.6 - Prob. 1ECh. 3.6 - Prob. 2ECh. 3.6 - Prob. 3ECh. 3.6 - Prob. 4ECh. 3.6 - Graph each function. Give the equations of the...Ch. 3.6 - Prob. 6ECh. 3.6 - Graph each function. Give the equations of the...Ch. 3.6 - Graph each function. Give the equations of the...Ch. 3.6 - Graph each function. Give the equations of the...Ch. 3.6 - Prob. 10ECh. 3.6 - Prob. 12ECh. 3.6 - Graph each function. Give the equations of the...Ch. 3.6 - Graph each function. Give the equations of the...Ch. 3.6 - Prob. 14ECh. 3.6 - Prob. 15ECh. 3.6 - Prob. 16ECh. 3.6 - Prob. 18ECh. 3.6 - Prob. 17ECh. 3.6 - Prob. 19ECh. 3.6 - Prob. 20ECh. 3.6 - Prob. 21ECh. 3.6 - Average Cost For Exercises 21 and 22, recall that...Ch. 3.6 - Prob. 23ECh. 3.6 - Work these problems. (See Example 2.) NASA The...Ch. 3.6 - Work these problems. (See Example 2.) Pollution...Ch. 3.6 - Prob. 26ECh. 3.6 - Business Sketch the portion of the graph in...Ch. 3.6 - Prob. 28ECh. 3.6 - Prob. 29ECh. 3.6 - Prob. 30ECh. 3.6 - Prob. 31ECh. 3.6 - Prob. 32ECh. 3 - In Exercises 1–6, state whether the given rule...Ch. 3 - Prob. 2RECh. 3 - Prob. 3RECh. 3 - Prob. 4RECh. 3 - Prob. 5RECh. 3 - Prob. 6RECh. 3 - Prob. 7RECh. 3 - Prob. 8RECh. 3 - Prob. 9RECh. 3 - Prob. 10RECh. 3 - Prob. 11RECh. 3 - Prob. 12RECh. 3 - Graph the functions in Exercises 13–24.
13.
Ch. 3 - Prob. 14RECh. 3 - Graph the functions in Exercises 13–24.
15.
Ch. 3 - Graph the functions in Exercises 13–24.
16.
Ch. 3 - Graph the functions in Exercises 13–24.
17.
Ch. 3 - Prob. 18RECh. 3 - Graph the functions in Exercises 13–24.
19.
Ch. 3 - Graph the functions in Exercises 13–24.
20.
Ch. 3 - Prob. 21RECh. 3 - Prob. 22RECh. 3 - Prob. 24RECh. 3 - Prob. 23RECh. 3 - 25. Business Let be a function that gives the...Ch. 3 - Prob. 26RECh. 3 - Prob. 27RECh. 3 - Prob. 28RECh. 3 - Business In Exercises 29-32, find the following:...Ch. 3 - Business In Exercises 29–32, find...Ch. 3 - Business In Exercises 29–32, find the...Ch. 3 - Business In Exercises 29-32, find the...Ch. 3 - 33. Business The cost of producing x ink...Ch. 3 - 34. Business The cost of producing x laser...Ch. 3 - 35. Business Suppose the demand and price for the...Ch. 3 - Prob. 36RECh. 3 - Without graphing, determine whether each of the...Ch. 3 - Without graphing, determine whether each of the...Ch. 3 - Without graphing, determine whether each of the...Ch. 3 - Without graphing, determine whether each of the...Ch. 3 - Graph each of the following quadratic functions,...Ch. 3 - Graph each of the following quadratic functions,...Ch. 3 - Graph each of the following quadratic functions,...Ch. 3 - Graph each of the following quadratic functions,...Ch. 3 - Graph each of the following quadratic functions,...Ch. 3 - Graph each of the following quadratic functions,...Ch. 3 - Graph each of the following quadratic functions,...Ch. 3 - Graph each of the following quadratic functions,...Ch. 3 - Determine whether the functions in Exercises 49–52...Ch. 3 - Determine whether the functions in Exercises 49–52...Ch. 3 - Determine whether the functions in Exercises 49–52...Ch. 3 - Determine whether the functions in Exercises 49–52...Ch. 3 - Prob. 53RECh. 3 - Prob. 54RECh. 3 - 55. Student Loans Interest rates for subsidized...Ch. 3 - Natural Gas Pricing The price of European natural...Ch. 3 - Netflix Revenue Netflix Inc. reported revenue (in...Ch. 3 - Netflix Revenue Netflix Inc. reported revenue (in...Ch. 3 - Use quadratic regression and the data from...Ch. 3 - 60. Use quadratic regression and the data from...Ch. 3 - Prob. 62RECh. 3 - Prob. 61RECh. 3 - Prob. 63RECh. 3 - Prob. 64RECh. 3 - Prob. 65RECh. 3 - Prob. 66RECh. 3 - Use a graphing calculator to do Exercises 67...Ch. 3 - Use a graphing calculator to do Exercises 67 -70....Ch. 3 - Use a graphing calculator to do Exercises 67...Ch. 3 - Prob. 70RECh. 3 - Prob. 71RECh. 3 - Prob. 72RECh. 3 - Prob. 73RECh. 3 - Prob. 74RECh. 3 - Prob. 75RECh. 3 - Prob. 76RECh. 3 - Prob. 77RECh. 3 - Prob. 78RECh. 3 - Prob. 79RECh. 3 - Prob. 80RECh. 3 - Find the maximum profit and the number of washing...Ch. 3 - 2. Is the quantity of washing machine loads the...Ch. 3 - Based on this information, what price should the...Ch. 3 - Suppose the owner of the laundry has hired your...
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- Question 5. We consider a put option with strike price K and expiration T. This option is priced using a 1-period CRR model. We consider r > 0, and σ > 0 very large. What is the approximate price of the option? In other words, what is the limit of the price of the option as σ∞. (Briefly justify your answer.)arrow_forwardQuestion 6. You collect daily data for the stock of a company Z over the past 4 months (i.e. 80 days) and calculate the log-returns (yk)/(-1. You want to build a CRR model for the evolution of the stock. The expected value and standard deviation of the log-returns are y = 0.06 and Sy 0.1. The money market interest rate is r = 0.04. Determine the risk-neutral probability of the model.arrow_forwardSeveral markets (Japan, Switzerland) introduced negative interest rates on their money market. In this problem, we will consider an annual interest rate r < 0. We consider a stock modeled by an N-period CRR model where each period is 1 year (At = 1) and the up and down factors are u and d. (a) We consider an American put option with strike price K and expiration T. Prove that if <0, the optimal strategy is to wait until expiration T to exercise.arrow_forward
- We consider an N-period CRR model where each period is 1 year (At = 1), the up factor is u = 0.1, the down factor is d = e−0.3 and r = 0. We remind you that in the CRR model, the stock price at time tn is modeled (under P) by Sta = So exp (μtn + σ√AtZn), where (Zn) is a simple symmetric random walk. (a) Find the parameters μ and σ for the CRR model described above. (b) Find P Ste So 55/50 € > 1). StN (c) Find lim P 804-N (d) Determine q. (You can use e- 1 x.) Ste (e) Find Q So (f) Find lim Q 004-N StN Soarrow_forwardIn this problem, we consider a 3-period stock market model with evolution given in Fig. 1 below. Each period corresponds to one year. The interest rate is r = 0%. 16 22 28 12 16 12 8 4 2 time Figure 1: Stock evolution for Problem 1. (a) A colleague notices that in the model above, a movement up-down leads to the same value as a movement down-up. He concludes that the model is a CRR model. Is your colleague correct? (Explain your answer.) (b) We consider a European put with strike price K = 10 and expiration T = 3 years. Find the price of this option at time 0. Provide the replicating portfolio for the first period. (c) In addition to the call above, we also consider a European call with strike price K = 10 and expiration T = 3 years. Which one has the highest price? (It is not necessary to provide the price of the call.) (d) We now assume a yearly interest rate r = 25%. We consider a Bermudan put option with strike price K = 10. It works like a standard put, but you can exercise it…arrow_forwardIn this problem, we consider a 2-period stock market model with evolution given in Fig. 1 below. Each period corresponds to one year (At = 1). The yearly interest rate is r = 1/3 = 33%. This model is a CRR model. 25 15 9 10 6 4 time Figure 1: Stock evolution for Problem 1. (a) Find the values of up and down factors u and d, and the risk-neutral probability q. (b) We consider a European put with strike price K the price of this option at time 0. == 16 and expiration T = 2 years. Find (c) Provide the number of shares of stock that the replicating portfolio contains at each pos- sible position. (d) You find this option available on the market for $2. What do you do? (Short answer.) (e) We consider an American put with strike price K = 16 and expiration T = 2 years. Find the price of this option at time 0 and describe the optimal exercising strategy. (f) We consider an American call with strike price K ○ = 16 and expiration T = 2 years. Find the price of this option at time 0 and describe…arrow_forward
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Discrete Mathematics and Its Applications ( 8th I...
Math
ISBN:9781259676512
Author:Kenneth H Rosen
Publisher:McGraw-Hill Education
Mathematics for Elementary Teachers with Activiti...
Math
ISBN:9780134392790
Author:Beckmann, Sybilla
Publisher:PEARSON
Thinking Mathematically (7th Edition)
Math
ISBN:9780134683713
Author:Robert F. Blitzer
Publisher:PEARSON
Discrete Mathematics With Applications
Math
ISBN:9781337694193
Author:EPP, Susanna S.
Publisher:Cengage Learning,
Pathways To Math Literacy (looseleaf)
Math
ISBN:9781259985607
Author:David Sobecki Professor, Brian A. Mercer
Publisher:McGraw-Hill Education
Finding Local Maxima and Minima by Differentiation; Author: Professor Dave Explains;https://www.youtube.com/watch?v=pvLj1s7SOtk;License: Standard YouTube License, CC-BY