Essentials of Statistics for the Behavioral Sciences
Essentials of Statistics for the Behavioral Sciences
8th Edition
ISBN: 9781133956570
Author: Frederick J Gravetter, Larry B. Wallnau
Publisher: Cengage Learning
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Chapter 4.5, Problem 1LC

Explain the difference between a biased and an unbiased statistic.

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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 4 Solutions

Essentials of Statistics for the Behavioral Sciences

Ch. 4.5 - In a population with a mean of = 50 and a...Ch. 4.5 - A population has a mean of . = 70 and a standard...Ch. 4 - In words, explain what is measured by each of the...Ch. 4 - Can SS ever have a value less than zero? Explain...Ch. 4 - Is it possible to obtain a negative value for the...Ch. 4 - What does it mean for a sample to have a standard...Ch. 4 - Explain why the formula for sample variance is...Ch. 4 - A population has a mean of = 80 and a standard...Ch. 4 - On an exam with a mean of M = 78, you obtain a...Ch. 4 - Calculate the mean and SS (sum of squared...Ch. 4 - For the following population of N = 6 scores: 3 1...Ch. 4 - For the following sample of n = 7 scores: 8 6 5 2...Ch. 4 - For the following population of N = 6 scores: 11 0...Ch. 4 - The range is completely determined by the two...Ch. 4 - A population has a mean of = 30 and a standard...Ch. 4 - a. After 3 points have heen aikicd to every score...Ch. 4 - For the following sample of n = 4 scores: 82, 88,...Ch. 4 - For the following sample of n = 8 scores: 0, 1,...Ch. 4 - For the data in the following sample: 81515 a....Ch. 4 - Calculate the mean and SS (sum of squared...Ch. 4 - Calculate SS, variance, and standard deviation for...Ch. 4 - Calculate SS, variance, and standard deviation for...Ch. 4 - Calculate SS, variance, and standard deviation for...Ch. 4 - In an extensive study involving thousands of...Ch. 4 - Within a population, the difference that exist...Ch. 4 - In the previous problem we noted that the...Ch. 4 - a. What is the general goal for descriptive...
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