Elementary Statistics: A Step-by-Step Approach with Formula Card
9th Edition
ISBN: 9780078136337
Author: Allan G. Bluman
Publisher: McGraw-Hill Education
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Chapter 5.1, Problem 28E
To determine
To construct: The
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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
Elementary Statistics: A Step-by-Step Approach with Formula Card
Ch. 5.1 - Dropping College Courses Use the following table...Ch. 5.1 - Define and give three examples of a random...Ch. 5.1 - Explain the difference between a discrete and a...Ch. 5.1 - Give three examples of a discrete random variable.Ch. 5.1 - Give three examples of a continuous random...Ch. 5.1 - List three continuous random variables and three...Ch. 5.1 - What is a probability distribution? Give an...Ch. 5.1 - Prob. 7ECh. 5.1 - For Exercises 7 through 12, determine whether the...Ch. 5.1 - Prob. 9E
Ch. 5.1 - For Exercises 7 through 12, determine whether the...Ch. 5.1 - Prob. 11ECh. 5.1 - For Exercises 7 through 12, determine whether the...Ch. 5.1 - Prob. 13ECh. 5.1 - For Exercises 13 through 18, state whether the...Ch. 5.1 - Prob. 15ECh. 5.1 - For Exercises 13 through 18, state whether the...Ch. 5.1 - Prob. 17ECh. 5.1 - For Exercises 13 through 18, state whether the...Ch. 5.1 - Prob. 19ECh. 5.1 - For Exercises 19 through 26, construct a...Ch. 5.1 - Prob. 21ECh. 5.1 - For Exercises 19 through 26, construct a...Ch. 5.1 - For Exercises 19 through 26, construct a...Ch. 5.1 - For Exercises 19 through 26, construct a...Ch. 5.1 - For Exercises 19 through 26, construct a...Ch. 5.1 - For Exercises 19 through 26, construct a...Ch. 5.1 - Triangular Numbers The first six triangular...Ch. 5.1 - Prob. 28ECh. 5.1 - Goals in Hockey The probability that a hockey team...Ch. 5.1 - Mathematics Tutoring Center At a drop-in...Ch. 5.1 - For Exercises 31 through 36, write the...Ch. 5.1 - For Exercises 31 through 36, write the...Ch. 5.1 - For Exercises 31 through 36, write the...Ch. 5.1 - For Exercises 31 through 36, write the...Ch. 5.1 - For Exercises 31 through 36, write the...Ch. 5.1 - For Exercises 31 through 36, write the...Ch. 5.1 - Computer Games The probability that a child plays...Ch. 5.2 - Radiation Exposure On March 28, 1979, the nuclear...Ch. 5.2 - Prob. 1ECh. 5.2 - Suit Sales The number of suits sold per day at a...Ch. 5.2 - Prob. 3ECh. 5.2 - Trivia Quiz The probabilities that a player will...Ch. 5.2 - Prob. 5ECh. 5.2 - Traffic Accidents The county highway department...Ch. 5.2 - Prob. 7ECh. 5.2 - Benfords Law The leading digits in actual data,...Ch. 5.2 - Prob. 9ECh. 5.2 - Pizza Deliveries A pizza shop owner determines the...Ch. 5.2 - Prob. 11ECh. 5.2 - Job Bids A landscape contractor bids on jobs where...Ch. 5.2 - Rolling Dice If a person rolls doubles when she...Ch. 5.2 - Dice Game A person pays 2 to play a certain game...Ch. 5.2 - Lottery Prizes A lottery offers one 1000 prize,...Ch. 5.2 - Winning the Lottery For a daily lottery, a person...Ch. 5.2 - Life Insurance A 35-year-old woman purchases a...Ch. 5.2 - Roulette A roulette wheel has 38 numbers, 1...Ch. 5.2 - Rolling Dice Construct a probability distribution...Ch. 5.2 - Rolling a Die When one die is rolled, the expected...Ch. 5.2 - The formula for finding the variance for a...Ch. 5.2 - Complete the following probability distribution if...Ch. 5.2 - Probability Distribution A bag contains five balls...Ch. 5.3 - Unsanitary Restaurants Health officials routinely...Ch. 5.3 - Which of the following are binomial experiments or...Ch. 5.3 - Which of the following are binomial experiments or...Ch. 5.3 - Compute the probability of X successes, using...Ch. 5.3 - Compute the probability of X successes, using...Ch. 5.3 - Compute the probability of X successes, using the...Ch. 5.3 - Compute the probability of X successes, using the...Ch. 5.3 - Prob. 7ECh. 5.3 - Multiple-Choice Exam A student takes a...Ch. 5.3 - Prob. 9ECh. 5.3 - High School Dropouts Approximately 10.3% of...Ch. 5.3 - Prob. 11ECh. 5.3 - Prob. 12ECh. 5.3 - Prob. 13ECh. 5.3 - Destination Weddings Twenty-six percent of couples...Ch. 5.3 - People Who Have Some College Education Fifty-three...Ch. 5.3 - Guidance Missile System A missile guidance system...Ch. 5.3 - Find the mean, variance, and standard deviation...Ch. 5.3 - Find the mean, variance, and standard deviation...Ch. 5.3 - Prob. 19ECh. 5.3 - Tossing Coins Find the mean, variance, and...Ch. 5.3 - Prob. 21ECh. 5.3 - Federal Government Employee E-mail Use It has been...Ch. 5.3 - Watching Fireworks A survey found that 21% of...Ch. 5.3 - Alternate Sources of Fuel Eighty-five percent of...Ch. 5.3 - Survey on Bathing Pets A survey found that 25% of...Ch. 5.3 - Survey on Answering Machine Ownership In a survey,...Ch. 5.3 - Poverty and the Federal Government One out of...Ch. 5.3 - Internet Purchases Thirty-two percent of adult...Ch. 5.3 - Prob. 29ECh. 5.3 - Job Elimination In a recent year, 13% of...Ch. 5.3 - Survey of High School Seniors Of graduating high...Ch. 5.3 - Is this a binomial distribution? Explain.Ch. 5.3 - Children in a Family The graph shown here...Ch. 5.3 - Construct a binomial distribution graph for the...Ch. 5.3 - Show that the mean for a binomial random variable...Ch. 5.4 - Prob. 1ACCh. 5.4 - Use the multinomial formula and find the...Ch. 5.4 - Use the multinomial formula and find the...Ch. 5.4 - MMs Color Distribution According to the...Ch. 5.4 - Truck Inspection Violations The probabilities are...Ch. 5.4 - Prob. 5ECh. 5.4 - Mendels Theory According to Mendels theory, if...Ch. 5.4 - Prob. 7ECh. 5.4 - Find each probability P(X; ) using Table C in...Ch. 5.4 - Study of Robberies A recent study of robberies for...Ch. 5.4 - Misprints on Manuscript Pages In a 400-page...Ch. 5.4 - Colors of Flowers A nursery provides red impatiens...Ch. 5.4 - Mail Ordering A mail-order company receives an...Ch. 5.4 - Company Mailing Of a companys mailings 1.5% are...Ch. 5.4 - Emission Inspection Failures If 3% of all cars...Ch. 5.4 - Phone Inquiries The average number of phone...Ch. 5.4 - Defective Calculators In a batch of 2000...Ch. 5.4 - School Newspaper Staff A school newspaper staff is...Ch. 5.4 - Job Applicants Twelve people apply for a teaching...Ch. 5.4 - Prob. 19ECh. 5.4 - Defective Computer Keyboards A shipment of 24...Ch. 5.4 - Defective Electronics A shipment of 24 smartphones...Ch. 5.4 - Job Applications Ten people apply for a job at...Ch. 5.4 - Prob. 23ECh. 5.4 - Prob. 24ECh. 5.4 - Shooting an Arrow Mark shoots arrows at a target...Ch. 5.4 - Amusement Park Game At an amusement park...Ch. 5.4 - Prob. 27ECCh. 5.4 - Prob. 28ECCh. 5.4 - Drawing Cards Cards are drawn at random from a...Ch. 5.4 - Prob. 30ECCh. 5.4 - Prob. 31ECCh. 5.4 - Lessons Outside of School About 2 out of every 3...Ch. 5.4 - Prob. 33ECCh. 5.4 - Work versus Conscience One worker in four in...Ch. 5 - For Exercises 1 through 3, determine whether the...Ch. 5 - For Exercises 1 through 3, determine whether the...Ch. 5 - Prob. 5.1.3RECh. 5 - Prob. 5.1.4RECh. 5 - Credit Cards A large retail company encourages its...Ch. 5 - Prob. 5.1.6RECh. 5 - Prob. 5.1.7RECh. 5 - Prob. 5.2.8RECh. 5 - Arrivals at an Airport At a small rural airport,...Ch. 5 - Cans of Paint Purchased During a recent paint sale...Ch. 5 - Prob. 5.2.11RECh. 5 - Outdoor Regatta A producer plans an outdoor...Ch. 5 - Card Game A game is set up as follows: All the...Ch. 5 - Card Game Using Exercise 13, how much should be...Ch. 5 - Let x be a binomial random variable with n = 12...Ch. 5 - Internet Access via Cell Phone In a retirement...Ch. 5 - Prob. 5.3.17RECh. 5 - Prob. 5.3.18RECh. 5 - U.S. Police Chiefs and the Death Penalty The...Ch. 5 - Prob. 5.3.20RECh. 5 - Pizza for Breakfast Three out of four American...Ch. 5 - Prob. 5.3.22RECh. 5 - Prob. 5.4.23RECh. 5 - Prob. 5.4.24RECh. 5 - Prob. 5.4.25RECh. 5 - Prob. 5.4.26RECh. 5 - Prob. 5.4.27RECh. 5 - Boating Accidents The number of boating accidents...Ch. 5 - Prob. 5.4.29RECh. 5 - Prob. 5.4.30RECh. 5 - Items Donated to a Food Bank At a food bank a case...Ch. 5 - Prob. 5.4.32RECh. 5 - Prob. 5.4.33RECh. 5 - Determine whether each statement is true or false....Ch. 5 - Determine whether each statement is true or false....Ch. 5 - Determine whether each statement is true or false....Ch. 5 - Determine whether each statement is true or false....Ch. 5 - Complete these statements with the best answer. 5....Ch. 5 - Complete these statements with the best answer. 6....Ch. 5 - Complete these statements with the best answer. 7....Ch. 5 - Select the best answer. 8. What is the sum of the...Ch. 5 - Select the best answer. 9. How many outcomes are...Ch. 5 - Select the best answer. 10. The number of trials...Ch. 5 - Prob. 11CQCh. 5 - Prob. 12CQCh. 5 - For exercises 11 through 14, determine if the...Ch. 5 - For exercises 11 through 14, determine if the...Ch. 5 - Prob. 15CQCh. 5 - Prob. 16CQCh. 5 - Prob. 17CQCh. 5 - Calls for a Crisis Hot Line The number of calls...Ch. 5 - Selecting a Card There are 6 playing cards placed...Ch. 5 - Prob. 20CQCh. 5 - Carpooling If 40% of all commuters ride to work in...Ch. 5 - Employed Women If 60% of all women are employed...Ch. 5 - Prob. 23CQCh. 5 - Meeting Attendance A history class has 75 members....Ch. 5 - Prob. 25CQCh. 5 - Quality Control Check Before a television set...Ch. 5 - Bowling Team Uniforms Among the teams in a bowling...Ch. 5 - Elm Trees If 8% of the population of trees are elm...Ch. 5 - Sports Score Hot Line Calls Sports Scores Hot Line...Ch. 5 - Color of Raincoats There are 48 raincoats for sale...Ch. 5 - Youth Group Officers A youth group has 8 boys and...Ch. 5 - Blood Types About 4% of the citizens of the United...Ch. 5 - Alcohol Abstainers About 35% of Americans abstain...Ch. 5 - Prob. 1CTCCh. 5 - Prob. 2CTCCh. 5 - Prob. 3CTCCh. 5 - Prob. 4CTCCh. 5 - Prob. 5CTC
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