Probability and Statistics for Engineering and the Sciences
9th Edition
ISBN: 9781305251809
Author: Jay L. Devore
Publisher: Cengage Learning
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Question
Chapter 5.1, Problem 1E
a.
To determine
Find the value of
b.
To determine
Find the value of
c.
To determine
Give a description of the
d.
To determine
Find the marginal pmf of X and Y.
Find the value of
e.
To determine
Explain whether X and Y are independent random variables.
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Problem 3. Pricing a multi-stock option the Margrabe formula
The purpose of this problem is to price a swap option in a 2-stock model, similarly as
what we did in the example in the lectures. We consider a two-dimensional Brownian
motion given by W₁ = (W(¹), W(2)) on a probability space (Q, F,P). Two stock prices
are modeled by the following equations:
dX
=
dY₁ =
X₁ (rdt+
rdt+0₁dW!)
(²)),
Y₁ (rdt+dW+0zdW!"),
with Xo
xo and Yo =yo. This corresponds to the multi-stock model studied in class,
but with notation (X+, Y₁) instead of (S(1), S(2)). Given the model above, the measure
P is already the risk-neutral measure (Both stocks have rate of return r). We write
σ = 0₁+0%. We consider a swap option, which gives you the right, at time T, to
exchange one share of X for one share of Y. That is, the option has payoff
F=(Yr-XT).
(a) We first assume that r = 0 (for questions (a)-(f)). Write an explicit expression for
the process Xt.
Reminder before proceeding to question (b): Girsanov's theorem…
Problem 1. Multi-stock model
We consider a 2-stock model similar to the one studied in class. Namely, we consider
=
S(1)
S(2)
=
S(¹) exp (σ1B(1) + (M1 - 0/1 )
S(²) exp (02B(2) + (H₂-
M2
where (B(¹) ) +20 and (B(2) ) +≥o are two Brownian motions, with
t≥0
Cov (B(¹), B(2)) = p min{t, s}.
"
The purpose of this problem is to prove that there indeed exists a 2-dimensional Brownian
motion (W+)+20 (W(1), W(2))+20 such that
=
S(1)
S(2)
=
=
S(¹) exp (011W(¹) + (μ₁ - 01/1) t)
롱)
S(²) exp (021W (1) + 022W(2) + (112 - 03/01/12) t).
where σ11, 21, 22 are constants to be determined (as functions of σ1, σ2, p).
Hint: The constants will follow the formulas developed in the lectures.
(a) To show existence of (Ŵ+), first write the expression for both W. (¹) and W (2)
functions of (B(1), B(²)).
as
(b) Using the formulas obtained in (a), show that the process (WA) is actually a 2-
dimensional standard Brownian motion (i.e. show that each component is normal,
with mean 0, variance t, and that their…
The scores of 8 students on the midterm exam and final exam were as follows.
Student
Midterm
Final
Anderson
98
89
Bailey
88
74
Cruz
87
97
DeSana
85
79
Erickson
85
94
Francis
83
71
Gray
74
98
Harris
70
91
Find the value of the (Spearman's) rank correlation coefficient test statistic that would be used to test the claim of no correlation between midterm score and final exam score. Round your answer to 3 places after the decimal point, if necessary.
Test statistic: rs =
Chapter 5 Solutions
Probability and Statistics for Engineering and the Sciences
Ch. 5.1 - Prob. 1ECh. 5.1 - A large but sparsely populated county has two...Ch. 5.1 - A certain market has both an express checkout line...Ch. 5.1 - Return to the situation described in Exercise 3....Ch. 5.1 - The number of customers waiting for gift-wrap...Ch. 5.1 - Let X denote the number of Canon SLR cameras sold...Ch. 5.1 - Prob. 7ECh. 5.1 - A stockroom currently has 30 components of a...Ch. 5.1 - Each front tire on a particular type of vehicle is...Ch. 5.1 - Prob. 10E
Ch. 5.1 - Two different professors have just submitted final...Ch. 5.1 - Two components of a minicomputer have the...Ch. 5.1 - Prob. 13ECh. 5.1 - Suppose that you have ten lightbulbs, that the...Ch. 5.1 - Prob. 15ECh. 5.1 - Prob. 16ECh. 5.1 - An ecologist wishes to select a point inside a...Ch. 5.1 - Refer to Exercise 1 and answer the following...Ch. 5.1 - The joint pdf of pressures for right and left...Ch. 5.1 - Let X1, X2, X3, X4, X5, and X6 denote the numbers...Ch. 5.1 - Let X1, X2, and X3 be the lifetimes of components...Ch. 5.2 - An instructor has given a short quiz consisting of...Ch. 5.2 - The difference between the number of customers in...Ch. 5.2 - Six individuals, including A and B, take seats...Ch. 5.2 - A surveyor wishes to lay out a square region with...Ch. 5.2 - Prob. 26ECh. 5.2 - Annie and Alvie have agreed to meet for lunch...Ch. 5.2 - Show that if X and Y are independent rvs, then...Ch. 5.2 - Compute the correlation coefficient for X and Y...Ch. 5.2 - Prob. 30ECh. 5.2 - a. Compute the covariance between X and Y in...Ch. 5.2 - Reconsider the minicomputer component lifetimes X...Ch. 5.2 - Prob. 33ECh. 5.2 - a. Recalling the definition of 2 for a single rv...Ch. 5.2 - a. Use the rules of expected value to show that...Ch. 5.2 - Show that if Y = aX + b (a 0), then Corr(X, Y)...Ch. 5.3 - A particular brand of dishwasher soap is sold in...Ch. 5.3 - There are two traffic lights on a commuters route...Ch. 5.3 - It is known that 80% of all brand A external hard...Ch. 5.3 - A box contains ten sealed envelopes numbered 1, ....Ch. 5.3 - Let X be the number of packages being mailed by a...Ch. 5.3 - A company maintains three offices in a certain...Ch. 5.3 - Suppose the amount of liquid dispensed by a...Ch. 5.4 - Youngs modulus is a quantitative measure of...Ch. 5.4 - Refer to Exercise 46. Suppose the distribution is...Ch. 5.4 - The National Health Statistics Reports dated Oct....Ch. 5.4 - There are 40 students in an elementary statistics...Ch. 5.4 - Let X denote the courtship time for a randomly...Ch. 5.4 - The time taken by a randomly selected applicant...Ch. 5.4 - The lifetime of a certain type of battery is...Ch. 5.4 - Rockwell hardness of pins of a certain type is...Ch. 5.4 - Suppose the sediment density (g/cm) of a randomly...Ch. 5.4 - The number of parking tickets issued in a certain...Ch. 5.4 - A binary communication channel transmits a...Ch. 5.4 - Suppose the distribution of the time X (in hours)...Ch. 5.5 - A shipping company handles containers in three...Ch. 5.5 - Let X1, X2, and X3 represent the times necessary...Ch. 5.5 - Refer back to Example 5.31. Two cars with...Ch. 5.5 - Exercise 26 introduced random variables X and Y,...Ch. 5.5 - Manufacture of a certain component requires three...Ch. 5.5 - Refer to Exercise 3. a. Calculate the covariance...Ch. 5.5 - Suppose your waiting time for a bus in the morning...Ch. 5.5 - Suppose that when the pH of a certain chemical...Ch. 5.5 - If two loads are applied to a cantilever beam as...Ch. 5.5 - One piece of PVC pipe is to be inserted inside...Ch. 5.5 - Two airplanes are flying in the same direction in...Ch. 5.5 - Three different roads feed into a particular...Ch. 5.5 - Consider a random sample of size n from a...Ch. 5.5 - In Exercise 66, the weight of the beam itself...Ch. 5.5 - I have three errands to take care of in the...Ch. 5.5 - Suppose the expected tensile strength of type-A...Ch. 5.5 - In an area having sandy soil, 50 small trees of a...Ch. 5 - A restaurant serves three fixed-price dinners...Ch. 5 - In cost estimation, the total cost of a project is...Ch. 5 - Prob. 77SECh. 5 - According to the article Reliability Evaluation of...Ch. 5 - Suppose that for a certain individual, calorie...Ch. 5 - The mean weight of luggage checked by a randomly...Ch. 5 - We have seen that if E(X1) = E(X2) = =E(Xn) = ,...Ch. 5 - Suppose the proportion of rural voters in a...Ch. 5 - Let denote the true pH of a chemical compound. A...Ch. 5 - If the amount of soft drink that I consume on any...Ch. 5 - Refer to Exercise 58, and suppose that the Xis are...Ch. 5 - A student has a class that is supposed to end at...Ch. 5 - Garbage trucks entering a particular...Ch. 5 - Each customer making a particular Internet...Ch. 5 - a. Use the general formula for the variance of a...Ch. 5 - Suppose a randomly chosen individuals verbal score...Ch. 5 - Prob. 91SECh. 5 - Prob. 92SECh. 5 - Prob. 93SECh. 5 - Let A denote the percentage of one constituent in...Ch. 5 - Let X1, . . . , Xn be independent rvs with mean...Ch. 5 - A more accurate approximation to E[h(X1, . . . ,...Ch. 5 - Prob. 97SECh. 5 - Prob. 98SE
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