Probability and Statistics for Engineers and Scientists
Probability and Statistics for Engineers and Scientists
9th Edition
ISBN: 9780321629111
Author: Ronald E. Walpole, Raymond H. Myers, Sharon L. Myers, Keying Ye
Publisher: Prentice Hall
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Chapter 3.3, Problem 24E
To determine

Find the probability distribution for the number of jazz CDs when 4 CDs are selected at random.

Express the result is using a formula.

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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?
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 3 Solutions

Probability and Statistics for Engineers and Scientists

Ch. 3.3 - A shipment of 7 television sets contains 2...Ch. 3.3 - An investment firm offers its customers municipal...Ch. 3.3 - The probability distribution of X, the number of...Ch. 3.3 - Prob. 14ECh. 3.3 - Prob. 15ECh. 3.3 - Construct a graph of the cumulative distribution...Ch. 3.3 - A continuous random variable X that can assume...Ch. 3.3 - A continuous random variable X that can assume...Ch. 3.3 - For the density function of Exercise 3.17, find...Ch. 3.3 - For the density function of Exercise 3.18, find...Ch. 3.3 - Consider the density function Evaluate k. Find...Ch. 3.3 - Three cards are drawn in succession from a deck...Ch. 3.3 - Prob. 23ECh. 3.3 - Find the probability distribution for the number...Ch. 3.3 - From a box containing 4 dimes and 2 nickels, 3...Ch. 3.3 - From a box containing 4 black balls and 2 green...Ch. 3.3 - The time to failure in hours of an important piece...Ch. 3.3 - Prob. 28ECh. 3.3 - Prob. 29ECh. 3.3 - Measurements of scientific systems are always...Ch. 3.3 - Based on extensive testing, it is determined by...Ch. 3.3 - Prob. 32ECh. 3.3 - Suppose a certain type of small data processing...Ch. 3.3 - Magnetron tubes are produced on an automated...Ch. 3.3 - Suppose it is known from large amounts of...Ch. 3.3 - On a laboratory assignment, if the equipment is...Ch. 3.4 - Prob. 37ECh. 3.4 - If the joint probability distribution of X and Y...Ch. 3.4 - Prob. 39ECh. 3.4 - Prob. 40ECh. 3.4 - Prob. 41ECh. 3.4 - Let X and Y denote the lengths of life, in years,...Ch. 3.4 - Prob. 43ECh. 3.4 - Prob. 44ECh. 3.4 - Let X denote the diameter of an armored electric...Ch. 3.4 - Referring to Exercise 3.38, find the marginal...Ch. 3.4 - The amount of kerosene, in thousands of liters, in...Ch. 3.4 - Referring to Exercise 3.39, find f(y|2) for all...Ch. 3.4 - Let X denote the number of times a certain...Ch. 3.4 - Suppose that X and Y have the following joint...Ch. 3.4 - Prob. 51ECh. 3.4 - A coin is tossed twice. Let Z denote the number of...Ch. 3.4 - Given the joint density function find P(1< Y < 3...Ch. 3.4 - Determine whether the two random variables of...Ch. 3.4 - Determine whether the two random variables of...Ch. 3.4 - The joint density function of the random variables...Ch. 3.4 - Let X, Y, and Z have the joint probability density...Ch. 3.4 - Determine whether the two random variables of...Ch. 3.4 - Prob. 59ECh. 3.4 - The joint probability density function of the...Ch. 3.4 - Prob. 61RECh. 3.4 - Prob. 62RECh. 3.4 - Prob. 63RECh. 3.4 - Prob. 64RECh. 3.4 - Prob. 65RECh. 3.4 - Prob. 66RECh. 3.4 - Prob. 67RECh. 3.4 - Prob. 68RECh. 3.4 - Prob. 69RECh. 3.4 - Prob. 70RECh. 3.4 - Prob. 71RECh. 3.4 - Prob. 72RECh. 3.4 - Prob. 73RECh. 3.4 - Prob. 74RECh. 3.4 - A chemical system that results from a chemical...Ch. 3.4 - Consider the situation of Review Exercise 3.75....Ch. 3.4 - Prob. 77RECh. 3.4 - Prob. 78RECh. 3.4 - Prob. 79RECh. 3.4 - Prob. 80RE
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