During the years 1998—2012. a total of 29 earthquakes of magnitude greater than 6.5 have occurred In Papua New Guinea. Assume that the time spent waiting between earthquakes is exponential. a. What Is the probability that the next earthquake occurs within the next three months? b. Given that six months has passed without an earthquake In Papua New Guinea, what Is the probability that the next three months will be f of earthquakes? c. What Is the probability of zero earthquakes occurring in 2014? d. What Is the probability that at least two earthquakes will occur in 2014?
During the years 1998—2012. a total of 29 earthquakes of magnitude greater than 6.5 have occurred In Papua New Guinea. Assume that the time spent waiting between earthquakes is exponential. a. What Is the probability that the next earthquake occurs within the next three months? b. Given that six months has passed without an earthquake In Papua New Guinea, what Is the probability that the next three months will be f of earthquakes? c. What Is the probability of zero earthquakes occurring in 2014? d. What Is the probability that at least two earthquakes will occur in 2014?
During the years 1998—2012. a total of 29 earthquakes of magnitude greater than 6.5 have occurred In Papua New Guinea. Assume that the time spent waiting between earthquakes is exponential.
a. What Is the probability that the next earthquake occurs within the next three months?
b. Given that six months has passed without an earthquake In Papua New Guinea, what Is the probability that the next three months will be f of earthquakes?
c. What Is the probability of zero earthquakes occurring in 2014?
d. What Is the probability that at least two earthquakes will occur in 2014?
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
Note: The purpose of this problem below is to use computational techniques (Excelspreadsheet, Matlab, R, Python, etc.) and code the dynamic programming ideas seen inclass. Please provide the numerical answer to the questions as well as a sample of yourwork (spreadsheet, code file, etc.).We consider an N-period binomial model with the following properties: N = 60, thecurrent stock price is S0 = 1000; on each period, the stock price increases by 0.5% whenit moves up and decreases by 0.3% when it moves down. The annual interest rate on themoney market is 5%. (Notice that this model is a CRR model, which means that thebinomial tree is recombining.)(a) Find the price at time t0 = 0 of a (European) call option with strike price K = 1040and maturity T = 1 year.(b) Find the price at time t0 = 0 of a (European) put option with strike price K = 1040and maturity T = 1 year.(c) We consider now, that you are at time t5 (i.e. after 5 periods, which represents 1month later). Assume that the stock…
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