2nd Edition

ISBN: 9780190663872

Author: Kenneth A. Gould; Tammy L. Lewis

Publisher: Oxford University Press Academic US

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Textbook Question

Chapter 5, Problem 98CRE

California Recidivism In California, the recidivism rate for prisoners is 67.5 % . That is 67.5 % of those released from prison go back to prison within three years. This is one of the highest recidivism rates in the nation.

a. Suppose two independent prisoners are released. What is the probability that they will both go back to prison within three years?

b. What is the probability that neither will go back to prison within three years?

c. Suppose two independent prisoners are released. What is the probability that one OR the other (or both) will go back to prison within three years?

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Chapter 5, Problem 97CRE

Chapter 5, Problem 99CRE

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Please solving problem2 Problem1 We consider a two-period binomial model with the following properties: each period lastsone (1) year and the current stock price is S0 = 4. On each period, the stock price doubleswhen it moves up and is reduced by half when it moves down. The annual interest rateon the money market is 25%. (This model is the same as in Prob. 1 of HW#2).We consider four options on this market: A European call option with maturity T = 2 years and strike price K = 5; A European put option with maturity T = 2 years and strike price K = 5; An American call option with maturity T = 2 years and strike price K = 5; An American put option with maturity T = 2 years and strike price K = 5.(a) Find the price at time 0 of both European options.(b) Find the price at time 0 of both American options. Compare your results with (a)and comment.(c) For each of the American options, describe the optimal exercising strategy.

Problem 1.We consider a two-period binomial model with the following properties: each period lastsone (1) year and the current stock price is S0 = 4. On each period, the stock price doubleswhen it moves up and is reduced by half when it moves down. The annual interest rateon the money market is 25%. We consider four options on this market: A European call option with maturity T = 2 years and strike price K = 5; A European put option with maturity T = 2 years and strike price K = 5; An American call option with maturity T = 2 years and strike price K = 5; An American put option with maturity T = 2 years and strike price K = 5.(a) Find the price at time 0 of both European options.(b) Find the price at time 0 of both American options. Compare your results with (a)and comment.(c) For each of the American options, describe the optimal exercising strategy.(d) We assume that you sell the American put to a market participant A for the pricefound in (b). Explain how you act on the market…

What is the standard scores associated to the left of z is 0.1446

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Solution Summary: The author calculates the probability that two randomly selected released prisoners will go back to prison within three years. The probability of observing an independent event must add up to 1.

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