NATURE OF MATHEMATICS LL + WEBASSIGN
13th Edition
ISBN: 9780357325865
Author: SMITH
Publisher: CENGAGE L
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Chapter 4.2, Problem 8PS
To determine
To define:
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Students have asked these similar questions
Question 1. Your manager asks you to explain why the Black-Scholes model may be inappro-
priate for pricing options in practice. Give one reason that would substantiate this claim?
Question 2. We consider stock #1 and stock #2 in the model of Problem 2. Your manager
asks you to pick only one of them to invest in based on the model provided. Which one do you
choose and why ?
Question 3. Let (St) to be an asset modeled by the Black-Scholes SDE. Let Ft be the price
at time t of a European put with maturity T and strike price K. Then, the discounted option
price process (ert Ft) t20 is a martingale. True or False? (Explain your answer.)
Question 4. You are considering pricing an American put option using a Black-Scholes model
for the underlying stock. An explicit formula for the price doesn't exist. In just a few words (no
more than 2 sentences), explain how you would proceed to price it.
Question 5. We model a short rate with a Ho-Lee model drt = ln(1+t) dt +2dWt. Then the
interest rate…
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.)
3. Consider the polynomial equation 6-iz+7z² - iz³ +z = 0 for which the roots are 3i, -2i, -i,
and i.
(a) Verify the relations between this roots and the coefficients of the polynomial.
(b) Find the annulus region in which the roots lie.
Chapter 4 Solutions
NATURE OF MATHEMATICS LL + WEBASSIGN
Ch. 4.1 - IN YOUR OWN WORDS Explain the difference between...Ch. 4.1 - IN YOUR OWN WORDS Discuss the similarities and...Ch. 4.1 - IN YOUR OWN WORDS What do you regard as the...Ch. 4.1 - Prob. 4PSCh. 4.1 - Prob. 5PSCh. 4.1 - Prob. 6PSCh. 4.1 - Prob. 7PSCh. 4.1 - Tell which of the named properties apply to the...Ch. 4.1 - Write each numeral in problems 920 as a decimal...Ch. 4.1 - Prob. 10PS
Ch. 4.1 - Prob. 11PSCh. 4.1 - Prob. 12PSCh. 4.1 - Prob. 13PSCh. 4.1 - Prob. 14PSCh. 4.1 - Prob. 15PSCh. 4.1 - Write each numeral in Problems 920 as a decimal...Ch. 4.1 - Prob. 17PSCh. 4.1 - Prob. 18PSCh. 4.1 - Prob. 19PSCh. 4.1 - Prob. 20PSCh. 4.1 - Prob. 21PSCh. 4.1 - Prob. 22PSCh. 4.1 - Prob. 23PSCh. 4.1 - Prob. 24PSCh. 4.1 - Prob. 25PSCh. 4.1 - Prob. 26PSCh. 4.1 - Prob. 27PSCh. 4.1 - Prob. 28PSCh. 4.1 - Prob. 29PSCh. 4.1 - Prob. 30PSCh. 4.1 - Prob. 31PSCh. 4.1 - Prob. 32PSCh. 4.1 - Prob. 33PSCh. 4.1 - Prob. 34PSCh. 4.1 - Prob. 35PSCh. 4.1 - Prob. 36PSCh. 4.1 - Prob. 37PSCh. 4.1 - Prob. 38PSCh. 4.1 - Prob. 39PSCh. 4.1 - Prob. 40PSCh. 4.1 - Prob. 41PSCh. 4.1 - Prob. 42PSCh. 4.1 - Prob. 43PSCh. 4.1 - Perform the indicated operations in Problems 4348.Ch. 4.1 - Prob. 45PSCh. 4.1 - Prob. 46PSCh. 4.1 - Prob. 47PSCh. 4.1 - Prob. 48PSCh. 4.1 - Prob. 49PSCh. 4.1 - What is the largest number that begins with the...Ch. 4.1 - Prob. 51PSCh. 4.1 - Prob. 52PSCh. 4.1 - Prob. 53PSCh. 4.1 - Prob. 54PSCh. 4.1 - Prob. 55PSCh. 4.1 - a. What is the largest number that uses each of...Ch. 4.1 - Prob. 57PSCh. 4.1 - Prob. 58PSCh. 4.1 - Prob. 59PSCh. 4.1 - Prob. 60PSCh. 4.2 - IN YOUR OWN WORDS Discuss the difference between...Ch. 4.2 - Prob. 2PSCh. 4.2 - Prob. 3PSCh. 4.2 - Prob. 4PSCh. 4.2 - Prob. 5PSCh. 4.2 - Prob. 6PSCh. 4.2 - Prob. 7PSCh. 4.2 - Prob. 8PSCh. 4.2 - Give the meaning of the numeral 5 in each of the...Ch. 4.2 - Prob. 10PSCh. 4.2 - Give the meaning of the numeral 5 in each of the...Ch. 4.2 - Prob. 12PSCh. 4.2 - Prob. 13PSCh. 4.2 - Prob. 14PSCh. 4.2 - Prob. 15PSCh. 4.2 - Prob. 16PSCh. 4.2 - Prob. 17PSCh. 4.2 - Prob. 18PSCh. 4.2 - Prob. 19PSCh. 4.2 - Prob. 20PSCh. 4.2 - Prob. 21PSCh. 4.2 - Prob. 22PSCh. 4.2 - Prob. 23PSCh. 4.2 - Prob. 24PSCh. 4.2 - Prob. 25PSCh. 4.2 - Prob. 26PSCh. 4.2 - Prob. 27PSCh. 4.2 - Prob. 28PSCh. 4.2 - Prob. 29PSCh. 4.2 - Prob. 30PSCh. 4.2 - Prob. 31PSCh. 4.2 - Prob. 32PSCh. 4.2 - Prob. 33PSCh. 4.2 - Prob. 34PSCh. 4.2 - Write each of the numbers in Problems 3142 in...Ch. 4.2 - Prob. 36PSCh. 4.2 - Prob. 37PSCh. 4.2 - Prob. 38PSCh. 4.2 - Prob. 39PSCh. 4.2 - Prob. 40PSCh. 4.2 - Prob. 41PSCh. 4.2 - Prob. 42PSCh. 4.2 - Prob. 43PSCh. 4.2 - Prob. 44PSCh. 4.2 - Prob. 45PSCh. 4.2 - Prob. 46PSCh. 4.2 - Prob. 47PSCh. 4.2 - Prob. 48PSCh. 4.2 - Prob. 49PSCh. 4.2 - Prob. 50PSCh. 4.2 - Prob. 51PSCh. 4.2 - Prob. 52PSCh. 4.2 - Prob. 53PSCh. 4.2 - Prob. 54PSCh. 4.2 - Prob. 55PSCh. 4.2 - Prob. 56PSCh. 4.2 - Prob. 57PSCh. 4.2 - Prob. 58PSCh. 4.2 - Prob. 59PSCh. 4.2 - Prob. 60PSCh. 4.3 - Prob. 1PSCh. 4.3 - Prob. 2PSCh. 4.3 - Prob. 3PSCh. 4.3 - Prob. 4PSCh. 4.3 - Count the number of people in the indicated base....Ch. 4.3 - Count the number of people in the indicated base....Ch. 4.3 - Prob. 7PSCh. 4.3 - Prob. 8PSCh. 4.3 - Prob. 9PSCh. 4.3 - Prob. 10PSCh. 4.3 - Prob. 11PSCh. 4.3 - Prob. 12PSCh. 4.3 - Prob. 13PSCh. 4.3 - Prob. 14PSCh. 4.3 - Prob. 15PSCh. 4.3 - Prob. 16PSCh. 4.3 - Prob. 17PSCh. 4.3 - Prob. 18PSCh. 4.3 - Prob. 19PSCh. 4.3 - Prob. 20PSCh. 4.3 - Prob. 21PSCh. 4.3 - Prob. 22PSCh. 4.3 - Prob. 23PSCh. 4.3 - Prob. 24PSCh. 4.3 - Prob. 25PSCh. 4.3 - Prob. 26PSCh. 4.3 - Prob. 27PSCh. 4.3 - Prob. 28PSCh. 4.3 - Prob. 29PSCh. 4.3 - Prob. 30PSCh. 4.3 - Prob. 31PSCh. 4.3 - Prob. 32PSCh. 4.3 - Prob. 33PSCh. 4.3 - Prob. 34PSCh. 4.3 - Prob. 35PSCh. 4.3 - Prob. 36PSCh. 4.3 - Prob. 37PSCh. 4.3 - Use number bases to answer the questions in...Ch. 4.3 - Prob. 39PSCh. 4.3 - Prob. 40PSCh. 4.3 - Prob. 41PSCh. 4.3 - Prob. 42PSCh. 4.3 - Prob. 43PSCh. 4.3 - Prob. 44PSCh. 4.3 - Prob. 45PSCh. 4.3 - Prob. 46PSCh. 4.3 - Prob. 47PSCh. 4.3 - Prob. 48PSCh. 4.3 - Prob. 49PSCh. 4.3 - Prob. 50PSCh. 4.3 - Prob. 51PSCh. 4.3 - Prob. 52PSCh. 4.3 - Prob. 53PSCh. 4.3 - Prob. 54PSCh. 4.3 - Prob. 55PSCh. 4.3 - Prob. 56PSCh. 4.3 - Prob. 57PSCh. 4.3 - Prob. 58PSCh. 4.3 - Prob. 59PSCh. 4.3 - Prob. 60PSCh. 4.4 - Prob. 1PSCh. 4.4 - Prob. 2PSCh. 4.4 - What decimal number is represented by the light...Ch. 4.4 - Prob. 4PSCh. 4.4 - What decimal number is represented by the light...Ch. 4.4 - Prob. 6PSCh. 4.4 - Prob. 7PSCh. 4.4 - Prob. 8PSCh. 4.4 - Prob. 9PSCh. 4.4 - Prob. 10PSCh. 4.4 - Prob. 11PSCh. 4.4 - Prob. 12PSCh. 4.4 - Prob. 13PSCh. 4.4 - Prob. 14PSCh. 4.4 - Prob. 15PSCh. 4.4 - Prob. 16PSCh. 4.4 - Prob. 17PSCh. 4.4 - Prob. 18PSCh. 4.4 - Prob. 19PSCh. 4.4 - Prob. 20PSCh. 4.4 - Prob. 21PSCh. 4.4 - Prob. 22PSCh. 4.4 - Prob. 23PSCh. 4.4 - Prob. 24PSCh. 4.4 - Prob. 25PSCh. 4.4 - Prob. 26PSCh. 4.4 - Prob. 27PSCh. 4.4 - Prob. 28PSCh. 4.4 - Prob. 29PSCh. 4.4 - Prob. 30PSCh. 4.4 - Prob. 31PSCh. 4.4 - Prob. 32PSCh. 4.4 - Prob. 33PSCh. 4.4 - Prob. 34PSCh. 4.4 - Prob. 35PSCh. 4.4 - Prob. 36PSCh. 4.4 - Prob. 37PSCh. 4.4 - Prob. 38PSCh. 4.4 - Prob. 39PSCh. 4.4 - Prob. 40PSCh. 4.4 - Perform the indicated operations in Problems 3946....Ch. 4.4 - Prob. 42PSCh. 4.4 - Prob. 43PSCh. 4.4 - Prob. 44PSCh. 4.4 - Prob. 45PSCh. 4.4 - Prob. 46PSCh. 4.4 - Prob. 47PSCh. 4.4 - Prob. 48PSCh. 4.4 - Prob. 49PSCh. 4.4 - Prob. 50PSCh. 4.4 - Prob. 51PSCh. 4.4 - Prob. 52PSCh. 4.4 - Prob. 53PSCh. 4.4 - Prob. 54PSCh. 4.4 - Prob. 55PSCh. 4.4 - Prob. 56PSCh. 4.4 - Prob. 57PSCh. 4.4 - Prob. 58PSCh. 4.4 - Prob. 59PSCh. 4.4 - Prob. 60PSCh. 4.5 - IN YOUR OWN WORDS Describe some of the computing...Ch. 4.5 - Prob. 2PSCh. 4.5 - Prob. 3PSCh. 4.5 - Prob. 4PSCh. 4.5 - Prob. 5PSCh. 4.5 - Prob. 6PSCh. 4.5 - Prob. 7PSCh. 4.5 - Prob. 8PSCh. 4.5 - Prob. 9PSCh. 4.5 - Prob. 10PSCh. 4.5 - Prob. 11PSCh. 4.5 - Prob. 12PSCh. 4.5 - Prob. 13PSCh. 4.5 - Prob. 14PSCh. 4.5 - Prob. 15PSCh. 4.5 - Prob. 16PSCh. 4.5 - Prob. 17PSCh. 4.5 - Prob. 18PSCh. 4.5 - Prob. 19PSCh. 4.5 - Prob. 20PSCh. 4.5 - Prob. 21PSCh. 4.5 - Prob. 22PSCh. 4.5 - Prob. 23PSCh. 4.5 - Prob. 24PSCh. 4.5 - Prob. 25PSCh. 4.5 - Prob. 26PSCh. 4.5 - Prob. 27PSCh. 4.5 - Prob. 28PSCh. 4.5 - Prob. 29PSCh. 4.5 - Prob. 30PSCh. 4.5 - Prob. 31PSCh. 4.5 - Prob. 32PSCh. 4.5 - Prob. 33PSCh. 4.5 - Prob. 34PSCh. 4.5 - Prob. 35PSCh. 4.5 - Prob. 36PSCh. 4.5 - Problems 3445 list a specific task. Decide whether...Ch. 4.5 - Prob. 38PSCh. 4.5 - Prob. 39PSCh. 4.5 - Prob. 40PSCh. 4.5 - Prob. 41PSCh. 4.5 - Prob. 42PSCh. 4.5 - Prob. 43PSCh. 4.5 - Prob. 44PSCh. 4.5 - Prob. 45PSCh. 4.5 - Prob. 46PSCh. 4.5 - Prob. 47PSCh. 4.5 - Prob. 48PSCh. 4.5 - Prob. 49PSCh. 4.5 - Prob. 50PSCh. 4.5 - Prob. 51PSCh. 4.5 - Prob. 52PSCh. 4.5 - Prob. 53PSCh. 4.5 - Prob. 54PSCh. 4.5 - Prob. 55PSCh. 4.5 - Prob. 56PSCh. 4.5 - Prob. 57PSCh. 4.5 - Prob. 58PSCh. 4.5 - Prob. 59PSCh. 4.5 - Prob. 60PSCh. 4.CR - Prob. 1CRCh. 4.CR - Prob. 2CRCh. 4.CR - Prob. 3CRCh. 4.CR - Prob. 4CRCh. 4.CR - Prob. 5CRCh. 4.CR - Prob. 6CRCh. 4.CR - Prob. 7CRCh. 4.CR - Prob. 8CRCh. 4.CR - Prob. 9CRCh. 4.CR - Prob. 10CRCh. 4.CR - Prob. 11CRCh. 4.CR - Prob. 12CRCh. 4.CR - Prob. 13CRCh. 4.CR - Prob. 14CRCh. 4.CR - Prob. 15CRCh. 4.CR - Prob. 16CRCh. 4.CR - Prob. 17CRCh. 4.CR - Prob. 18CRCh. 4.CR - Prob. 19CRCh. 4.CR - Prob. 20CR
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