DIFFERENTIAL EQUATIONS-NEXTGEN WILEYPLUS

3rd Edition

ISBN: 9781119764564

Author: BRANNAN

Publisher: WILEY

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In mathematics, problems can be solved by the arithmetic operators like addition, subtraction, multiplication, and division. In algebra, we represent the numbers by any letter called a variable. If these variables are of degree 1, then it is studied unde…

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Textbook Question

Chapter 4.2, Problem 10P

In each of the Problems 9 through 14 , find the Wronskian of the given pair of functions.

cos t , sin t

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Chapter 4.2, Problem 9P

Chapter 4.2, Problem 11P

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Construct a know-show table for each statement below that appears to be true.

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 4 Solutions

DIFFERENTIAL EQUATIONS-NEXTGEN WILEYPLUS

Ch. 4.1 - In Problems 1 through 7, determine whether the...Ch. 4.1 - In Problems 1 through 7, determine whether the...Ch. 4.1 - In Problems 1 through 7, determine whether the...Ch. 4.1 - In Problems 1 through 7, determine whether the...Ch. 4.1 - In Problems 1 through 7, determine whether the...Ch. 4.1 - In Problems 1 through 7, determine whether the...Ch. 4.1 - In Problems 1 through 7, determine whether the...Ch. 4.1 - A mass weighing stretches a spring . What is the...Ch. 4.1 - A mass attached to a vertical spring is slowly...Ch. 4.1 - A mass weighing stretches a spring . The mass is...

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