
Mathematical Applications for the Management, Life, and Social Sciences
11th Edition
ISBN: 9781305108042
Author: Ronald J. Harshbarger, James J. Reynolds
Publisher: Cengage Learning
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Chapter 4.2, Problem 18E
To determine
To calculate: The minimize value of function
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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
So
In 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…
In 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…
Chapter 4 Solutions
Mathematical Applications for the Management, Life, and Social Sciences
Ch. 4.1 - 1. Graph the region determined by the...Ch. 4.1 - 2. Determine the corners of the region.
Ch. 4.1 - In Problems 1-6, graph each inequality.
Ch. 4.1 - In Problems 1-6, graph each inequality.
2.
Ch. 4.1 - In Problems 1-6, graph each inequality.
3.
Ch. 4.1 - In Problems 1-6, graph each inequality.
4.
Ch. 4.1 - In Problems 1-6, graph each inequality.
5.
Ch. 4.1 - In Problems 1-6, graph each inequality.
6.
Ch. 4.1 - In Problems 7-12, the graph of the boundary...Ch. 4.1 - In Problems 7-12, the graph of the boundary...
Ch. 4.1 - In Problems 7-12, the graph of the boundary...Ch. 4.1 - In Problems 7-12, the graph of the boundary...Ch. 4.1 - In Problems 7-12, the graph of the boundary...Ch. 4.1 - In Problems 7-12, the graph of the boundary...Ch. 4.1 - In Problems 13-26, graph the solution of each...Ch. 4.1 - In Problems 13-26, graph the solution of each...Ch. 4.1 - Prob. 15ECh. 4.1 - In Problems 13-26, graph the solution of each...Ch. 4.1 - Prob. 17ECh. 4.1 - Prob. 18ECh. 4.1 - In Problems 13-26, graph the solution of each...Ch. 4.1 - Prob. 20ECh. 4.1 - Prob. 21ECh. 4.1 - In Problems 13-26, graph the solution of each...Ch. 4.1 - Prob. 23ECh. 4.1 - Prob. 24ECh. 4.1 - Prob. 25ECh. 4.1 - In Problems 13-26, graph the solution of each...Ch. 4.1 - 27. Management The Wellbuilt Company produces two...Ch. 4.1 - Prob. 28ECh. 4.1 - 29. Manufacturing A company manufactures two types...Ch. 4.1 - 30. Manufacturing Sierra Wood Products...Ch. 4.1 - 31. Advertising Apex Motors manufactures luxury...Ch. 4.1 - Prob. 32ECh. 4.1 - 33. Politics A candidate wants to use a...Ch. 4.1 - Prob. 34ECh. 4.1 - Prob. 35ECh. 4.1 - 36. Manufacturing A cereal manufacturer makes two...Ch. 4.2 - 1. Find the maximum and minimum values of the...Ch. 4.2 - 2. Find the maximum and minimum values (if they...Ch. 4.2 - In Problems 1-4, use the given feasible region...Ch. 4.2 - In Problems 1-4, use the given feasible region...Ch. 4.2 - In Problems 1-4, use the given feasible region...Ch. 4.2 - In Problems 1-4, use the given feasible region...Ch. 4.2 - In Problems 5-8, the graph of the feasible region...Ch. 4.2 - In Problems 5-8, the graph of the feasible region...Ch. 4.2 - In Problems 5-8, the graph of the feasible region...Ch. 4.2 - In Problems 5-8, the graph of the feasible region...Ch. 4.2 - In Problems 9-12, find the indicated maximum or...Ch. 4.2 - Prob. 10ECh. 4.2 - In Problems 9-12, find the indicated maximum or...Ch. 4.2 - In Problems 9-12, find the indicated maximum or...Ch. 4.2 - In Problems 13-24, solve the following linear...Ch. 4.2 - Prob. 14ECh. 4.2 - In Problems 13-24, solve the following linear...Ch. 4.2 - Prob. 16ECh. 4.2 - In Problems 13-24, solve the following linear...Ch. 4.2 - Prob. 18ECh. 4.2 - Prob. 19ECh. 4.2 - Prob. 20ECh. 4.2 - Prob. 21ECh. 4.2 - In Problems 13-24, solve the following linear...Ch. 4.2 - In Problems 13-24, solve the following linear...Ch. 4.2 - In Problems 13-24, solve the following linear...Ch. 4.2 - 25. Manufacturing The Wellbuilt Company produces...Ch. 4.2 - Prob. 26ECh. 4.2 - 27. Manufacturing A company manufactures two types...Ch. 4.2 - 28. Manufacturing Sierra Wood Products...Ch. 4.2 - 29. Politics A candidate wants to use a...Ch. 4.2 - 30. Nutrition In a hospital ward, the patients can...Ch. 4.2 - 31. Production scheduling Newjet, Inc....Ch. 4.2 - 32. Production scheduling At one of its factories,...Ch. 4.2 - 33. Nutrition A privately owned lake contains two...Ch. 4.2 - 34. Nutrition In a zoo, there is a natural habitat...Ch. 4.2 - Shadow prices—land management For Problems 35 and...Ch. 4.2 - Shadow prices—land management For Problems 35 and...Ch. 4.2 - 37. Manufacturing Two factories produce three...Ch. 4.2 - 38. Nutrition In a laboratory experiment, two...Ch. 4.2 - 39. Manufacturing The Janie Gioffre Drapery...Ch. 4.2 - 40. Nutrition Two foods contain proteins,...Ch. 4.2 - 41. Manufacturing A sausage company makes two...Ch. 4.2 - 42. Manufacturing A cereal manufacturer makes two...Ch. 4.2 - 43. Shipping costs TV Circuit has 30 large-screen...Ch. 4.2 - 44. Construction A contractor builds two types of...Ch. 4.2 - Management A bank has two types of branches. A...Ch. 4.2 - 46. Manufacturing A company manufactures two...Ch. 4.3 - 1. Write the following constraints as equations by...Ch. 4.3 - Prob. 2CPCh. 4.3 - Prob. 3CPCh. 4.3 - Prob. 4CPCh. 4.3 - Prob. 5CPCh. 4.3 - Prob. 6CPCh. 4.3 - Prob. 1ECh. 4.3 - Prob. 2ECh. 4.3 - Prob. 3ECh. 4.3 - Prob. 4ECh. 4.3 - Prob. 5ECh. 4.3 - Prob. 6ECh. 4.3 - Prob. 7ECh. 4.3 - Prob. 8ECh. 4.3 - In Problems 7-10, a simplex matrix is given in...Ch. 4.3 - Prob. 10ECh. 4.3 - Prob. 11ECh. 4.3 - Prob. 12ECh. 4.3 - Prob. 13ECh. 4.3 - Prob. 14ECh. 4.3 - Prob. 15ECh. 4.3 - In Problems 11-18, a simplex matrix for a standard...Ch. 4.3 - Prob. 17ECh. 4.3 - Prob. 18ECh. 4.3 - Prob. 19ECh. 4.3 - Prob. 20ECh. 4.3 - Prob. 21ECh. 4.3 - Prob. 22ECh. 4.3 - Prob. 23ECh. 4.3 - Prob. 24ECh. 4.3 - Prob. 25ECh. 4.3 - Prob. 26ECh. 4.3 - Prob. 27ECh. 4.3 - 28. Maximize subject to
Ch. 4.3 - Prob. 29ECh. 4.3 - Prob. 30ECh. 4.3 - Problems 31-38 involve linear programming problems...Ch. 4.3 - Problems 31-38 involve linear programming problems...Ch. 4.3 - Prob. 33ECh. 4.3 - Prob. 34ECh. 4.3 - Prob. 35ECh. 4.3 - In Problems 35-38, use the simplex method to...Ch. 4.3 - Prob. 37ECh. 4.3 - Prob. 38ECh. 4.3 - Manufacturing Newjet Inc. manufactures two types...Ch. 4.3 - 40. Construction A contractor builds two types of...Ch. 4.3 - Prob. 41ECh. 4.3 - 42. Budget utilization A car rental agency has a...Ch. 4.3 - 43. Production scheduling Happy Valley Ice Cream...Ch. 4.3 - 44. Experimentation An experiment involves placing...Ch. 4.3 - Problems 45-48 involve three variables. Solve them...Ch. 4.3 - Problems 45-48 involve three variables. Solve...Ch. 4.3 - Problems 45-48 involve three variables. Solve...Ch. 4.3 - Problems 45-48 involve three variables. Solve...Ch. 4.3 - In Problems 49-54, use Excel to solve each linear...Ch. 4.3 - In Problems 49-54, use Excel to solve each linear...Ch. 4.3 - Prob. 51ECh. 4.3 - In Problems 49-54, use Excel to solve each linear...Ch. 4.3 - In Problems 49-54, use Excel to solve each linear...Ch. 4.3 - In Problems 49-54, use Excel to solve each linear...Ch. 4.4 - Perform the following steps to begin the process...Ch. 4.4 - Prob. 2CPCh. 4.4 - Prob. 3CPCh. 4.4 - Prob. 4CPCh. 4.4 - Prob. 5CPCh. 4.4 - Prob. 1ECh. 4.4 - Prob. 2ECh. 4.4 - Prob. 3ECh. 4.4 - Prob. 4ECh. 4.4 - In Problems 5 and 6, suppose a primal minimization...Ch. 4.4 - Prob. 6ECh. 4.4 - In Problems 7-10, write the dual maximization...Ch. 4.4 - Prob. 8ECh. 4.4 - Prob. 9ECh. 4.4 - In Problems 7-10, write the dual maximization...Ch. 4.4 - Prob. 11ECh. 4.4 - Prob. 12ECh. 4.4 - Prob. 13ECh. 4.4 - Prob. 14ECh. 4.4 - Prob. 15ECh. 4.4 - Prob. 16ECh. 4.4 - Prob. 17ECh. 4.4 - In Problems 17-20, use Excel or some other...Ch. 4.4 - Prob. 19ECh. 4.4 - Prob. 20ECh. 4.4 - 21. Production scheduling CDF Appliances has...Ch. 4.4 - Manufacturing Nekita Corporation assembles cell...Ch. 4.4 - Manufacturing The Video Star Company makes two...Ch. 4.4 - Prob. 24ECh. 4.4 - 25. Production A small company produces two...Ch. 4.4 - 26. Nutrition In a hospital ward, the patients can...Ch. 4.4 - 27. Production Two factories produce three...Ch. 4.4 - 28. Nutrition In a laboratory experiment, two...Ch. 4.4 - Prob. 29ECh. 4.4 - Prob. 30ECh. 4.4 - Prob. 31ECh. 4.4 - In Problems 31-36, use the simplex method, Excel,...Ch. 4.4 - Prob. 33ECh. 4.4 - In Problems 31-36, use the simplex method, Excel,...Ch. 4.5 - Prob. 1CPCh. 4.5 - 2. Using the matrix from Problem 1, find the...Ch. 4.5 - Prob. 1ECh. 4.5 - Prob. 2ECh. 4.5 - Prob. 3ECh. 4.5 - Prob. 4ECh. 4.5 - Prob. 5ECh. 4.5 - Prob. 6ECh. 4.5 - Prob. 7ECh. 4.5 - Prob. 8ECh. 4.5 - Prob. 9ECh. 4.5 - Prob. 10ECh. 4.5 - Prob. 11ECh. 4.5 - Prob. 12ECh. 4.5 - Prob. 13ECh. 4.5 - Prob. 14ECh. 4.5 - Prob. 15ECh. 4.5 - Prob. 16ECh. 4.5 - Prob. 17ECh. 4.5 - Prob. 18ECh. 4.5 - Prob. 19ECh. 4.5 - Prob. 20ECh. 4.5 - Prob. 21ECh. 4.5 - In Problems 19-26, use the simplex method or...Ch. 4.5 - Prob. 23ECh. 4.5 - Prob. 24ECh. 4.5 - Prob. 25ECh. 4.5 - Prob. 26ECh. 4.5 - Problems 27-30 involve maximization with mixed...Ch. 4.5 - Prob. 28ECh. 4.5 - Problems 27-30 involve maximization with mixed...Ch. 4.5 - Problems 27-30 involve maximization with mixed...Ch. 4.5 - Problems 31-36 involve minimization with mixed...Ch. 4.5 - Problems 31-36 involve minimization with mixed...Ch. 4.5 - Prob. 33ECh. 4.5 - Prob. 34ECh. 4.5 - Problems 31-36 involve minimization with mixed...Ch. 4.5 - Problems 31-36 involve minimization with mixed...Ch. 4.5 - In Problems 37 and 38, use Excel or some other...Ch. 4.5 - Prob. 38ECh. 4 - In Problems 1-4, use the given feasible region...Ch. 4 - Prob. 2RECh. 4 - Prob. 3RECh. 4 - Prob. 4RECh. 4 - In Problems 5-8, a function and the graph of a...Ch. 4 - Prob. 6RECh. 4 - Prob. 7RECh. 4 - In Problems 5-8, a function and the graph of a...Ch. 4 - Prob. 9RECh. 4 - Prob. 10RECh. 4 - Prob. 11RECh. 4 - In Problems 9-15, solve the linear programming...Ch. 4 - Prob. 13RECh. 4 - In Problems 9-15, solve the linear programming...Ch. 4 - Prob. 15RECh. 4 - In Problems 16-19, use the simplex method to solve...Ch. 4 - Prob. 17RECh. 4 - Prob. 18RECh. 4 - Prob. 19RECh. 4 - Prob. 20RECh. 4 - Prob. 21RECh. 4 - Prob. 22RECh. 4 - Prob. 23RECh. 4 - Prob. 24RECh. 4 - In Problems 22-25, form the dual and use the...Ch. 4 - Prob. 26RECh. 4 - Prob. 27RECh. 4 - Prob. 28RECh. 4 - In Problems 28-35, use the simplex method. Assume...Ch. 4 - Prob. 30RECh. 4 - Prob. 31RECh. 4 - Prob. 32RECh. 4 - Prob. 33RECh. 4 - Prob. 34RECh. 4 - In Problems 28-35, use the simplex method. Assume...Ch. 4 - 36. Manufacturing A company manufactures backyard...Ch. 4 - 37. Production A company produces two different...Ch. 4 - 38. Manufacturing Chairco manufactures two types...Ch. 4 - Prob. 39RECh. 4 - 40. Production Pinocchio Crafts makes two types of...Ch. 4 - Profit At its Jacksonville factory, Nolmaur...Ch. 4 - 42. Nutrition A nutritionist wants to find the...Ch. 4 - 43. Nutrition A laboratory technician wants to...Ch. 4 - 44. Production A company makes three products (I,...Ch. 4 - 45. Profit A company makes pancake mix and cake...Ch. 4 - Prob. 46RECh. 4 - Prob. 47RECh. 4 - Prob. 1TCh. 4 - Prob. 2TCh. 4 - Prob. 3TCh. 4 - Prob. 4TCh. 4 - Prob. 5TCh. 4 - Prob. 6TCh. 4 - Prob. 7TCh. 4 - Prob. 8TCh. 4 - Prob. 9TCh. 4 - Prob. 10TCh. 4 - Prob. 11TCh. 4 - 12. River Brewery is a microbrewery that produces...Ch. 4 - 13. A marketing research group conducting a...Ch. 4 - 14. Lawn Rich, Inc., makes four different lawn...
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