Elementary Technical Mathematics
11th Edition
ISBN: 9781285199191
Author: Dale Ewen, C. Robert Nelson
Publisher: Cengage Learning
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Chapter 5.4, Problem 1E
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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?
The Course Name Real Analysis please Solve questions by Real Analysis
Chapter 5 Solutions
Elementary Technical Mathematics
Ch. 5.1 - Prob. 1ECh. 5.1 - Evaluate each expression: (2)(3)2+3(2)6Ch. 5.1 - Prob. 3ECh. 5.1 - Prob. 4ECh. 5.1 - Prob. 5ECh. 5.1 - Prob. 6ECh. 5.1 - Prob. 7ECh. 5.1 - Evaluate each expression: (9)233(6)+[ 3(2)5(3) ]Ch. 5.1 - Evaluate each expression: [ (2)(8)2(2)3 ][ 4+(2)4...Ch. 5.1 - Prob. 10E
Ch. 5.1 - In Exercise 11-16, let x=2 and y=3, and evaluate...Ch. 5.1 - In Exercise 11-16, let x=2 and y=3, and evaluate...Ch. 5.1 - In Exercise 11-16, let x=2 and y=3, and evaluate...Ch. 5.1 - Prob. 14ECh. 5.1 - Prob. 15ECh. 5.1 - In Exercise 11-16, let x=2 and y=3, and evaluate...Ch. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - Prob. 24ECh. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - In Exercise 17-26, let x=1 and y=5, and evaluate...Ch. 5.1 - In Exercises 27-32, let x=3,y=4,andz=6 . Evaluate...Ch. 5.1 - In Exercises 27-32, let x=3,y=4,andz=6 . Evaluate...Ch. 5.1 - In Exercises 27-32, let x=3,y=4,andz=6 . Evaluate...Ch. 5.1 - Prob. 30ECh. 5.1 - Prob. 31ECh. 5.1 - Prob. 32ECh. 5.1 - In Exercises 33-42, let x=1,y=2,andz=3 . Evaluate...Ch. 5.1 - Prob. 34ECh. 5.1 - In Exercises 33-42, let x=1,y=2,andz=3 . Evaluate...Ch. 5.1 - Prob. 36ECh. 5.1 - In Exercises 33-42, let x=1,y=2,andz=3 . Evaluate...Ch. 5.1 - In Exercises 33-42, let x=1,y=2,andz=3 . Evaluate...Ch. 5.1 - Prob. 39ECh. 5.1 - In Exercises 33-42, let x=1,y=2,andz=3 . Evaluate...Ch. 5.1 - In Exercises 33-42, let x=1,y=2,andz=3 . Evaluate...Ch. 5.1 - In Exercises 33-42, let x=1,y=2,andz=3 . Evaluate...Ch. 5.2 - Remove the parentheses from each expression:...Ch. 5.2 - Prob. 2ECh. 5.2 - Prob. 3ECh. 5.2 - Prob. 4ECh. 5.2 - Prob. 5ECh. 5.2 - Remove the parentheses from each expression:...Ch. 5.2 - Prob. 7ECh. 5.2 - Prob. 8ECh. 5.2 - Prob. 9ECh. 5.2 - Prob. 10ECh. 5.2 - Prob. 11ECh. 5.2 - Remove the parentheses from each expression:...Ch. 5.2 - Prob. 13ECh. 5.2 - Prob. 14ECh. 5.2 - Prob. 15ECh. 5.2 - Prob. 16ECh. 5.2 - Remove the parentheses from each expression:...Ch. 5.2 - Remove the parentheses from each expression:...Ch. 5.2 - Remove the parentheses from each expression:...Ch. 5.2 - Prob. 20ECh. 5.2 - Prob. 21ECh. 5.2 - Prob. 22ECh. 5.2 - Prob. 23ECh. 5.2 - Prob. 24ECh. 5.2 - Prob. 25ECh. 5.2 - Prob. 26ECh. 5.2 - Prob. 27ECh. 5.2 - Prob. 28ECh. 5.2 - Combine the like terms: 6a2+a+12aCh. 5.2 - Combine the like terms: 5x2+3x28x2Ch. 5.2 - Prob. 31ECh. 5.2 - Prob. 32ECh. 5.2 - Prob. 33ECh. 5.2 - Prob. 34ECh. 5.2 - Prob. 35ECh. 5.2 - Prob. 36ECh. 5.2 - Prob. 37ECh. 5.2 - Combine the like terms: 3x25x2+4x2+x4+5x2x+2Ch. 5.2 - Prob. 39ECh. 5.2 - Prob. 40ECh. 5.2 - Prob. 41ECh. 5.2 - Prob. 42ECh. 5.2 - Prob. 43ECh. 5.2 - Prob. 44ECh. 5.2 - Prob. 45ECh. 5.2 - Prob. 46ECh. 5.2 - Simplify by first removing the parentheses and...Ch. 5.2 - Prob. 48ECh. 5.2 - Prob. 49ECh. 5.2 - Prob. 50ECh. 5.2 - Prob. 51ECh. 5.2 - Prob. 52ECh. 5.2 - Prob. 53ECh. 5.2 - Prob. 54ECh. 5.2 - Prob. 55ECh. 5.2 - Prob. 56ECh. 5.2 - Prob. 57ECh. 5.2 - Prob. 58ECh. 5.2 - Simplify by first removing the parentheses and...Ch. 5.2 - Prob. 60ECh. 5.2 - Prob. 61ECh. 5.2 - Prob. 62ECh. 5.2 - Simplify by first removing the parentheses and...Ch. 5.2 - Prob. 64ECh. 5.2 - Prob. 65ECh. 5.2 - Simplify by first removing the parentheses and...Ch. 5.2 - Prob. 67ECh. 5.2 - Prob. 68ECh. 5.2 - Prob. 69ECh. 5.2 - Prob. 70ECh. 5.2 - Prob. 71ECh. 5.2 - Prob. 72ECh. 5.2 - Simplify by first removing the parentheses and...Ch. 5.2 - Prob. 74ECh. 5.2 - Prob. 75ECh. 5.2 - Prob. 76ECh. 5.2 - Simplify by first removing the parentheses and...Ch. 5.2 - Prob. 78ECh. 5.3 - Classify each expression as a monomial, a...Ch. 5.3 - Prob. 2ECh. 5.3 - Prob. 3ECh. 5.3 - Prob. 4ECh. 5.3 - Prob. 5ECh. 5.3 - Classify each expression as a monomial, a...Ch. 5.3 - Prob. 7ECh. 5.3 - Classify each expression as a monomial, a...Ch. 5.3 - Classify each expression as a monomial, a...Ch. 5.3 - Classify each expression as a monomial, a...Ch. 5.3 - Prob. 11ECh. 5.3 - Prob. 12ECh. 5.3 - Rearrange each polynomial in decreasing order and...Ch. 5.3 - Rearrange each polynomial in decreasing order and...Ch. 5.3 - Prob. 15ECh. 5.3 - Prob. 16ECh. 5.3 - Rearrange each polynomial in decreasing order and...Ch. 5.3 - Rearrange each polynomial in decreasing order and...Ch. 5.3 - Rearrange each polynomial in decreasing order and...Ch. 5.3 - Prob. 20ECh. 5.3 - Prob. 21ECh. 5.3 - Prob. 22ECh. 5.3 - Add the following polynomials: (6x27x+5)+(3x2+2x5)Ch. 5.3 - Prob. 24ECh. 5.3 - Prob. 25ECh. 5.3 - Prob. 26ECh. 5.3 - Prob. 27ECh. 5.3 - Prob. 28ECh. 5.3 - Prob. 29ECh. 5.3 - Prob. 30ECh. 5.3 - Prob. 31ECh. 5.3 - Prob. 32ECh. 5.3 - Prob. 33ECh. 5.3 - Prob. 34ECh. 5.3 - Prob. 35ECh. 5.3 - Prob. 36ECh. 5.3 - Prob. 37ECh. 5.3 - Prob. 38ECh. 5.3 - Find each difference: (3x25x+4)(6x27x+2)Ch. 5.3 - Find each difference: (13x2x2)(15x+x2)Ch. 5.3 - Find each difference: (3a4b)(2a7b)Ch. 5.3 - Prob. 42ECh. 5.3 - Prob. 43ECh. 5.3 - Prob. 44ECh. 5.3 - Prob. 45ECh. 5.3 - Prob. 46ECh. 5.3 - Find each difference: (20w217w6)(13w2+7w)Ch. 5.3 - Find each difference: (y22y+1)(2y2+3y+5)Ch. 5.3 - Prob. 49ECh. 5.3 - Prob. 50ECh. 5.3 - Prob. 51ECh. 5.3 - Prob. 52ECh. 5.3 - Prob. 53ECh. 5.3 - Prob. 54ECh. 5.3 - Prob. 55ECh. 5.3 - Subtract the following polynomials:...Ch. 5.3 - Subtract the following polynomials:...Ch. 5.3 - Prob. 58ECh. 5.4 - Find each product: (3a)(5)Ch. 5.4 - Prob. 2ECh. 5.4 - Prob. 3ECh. 5.4 - Prob. 4ECh. 5.4 - Find each product: (9m2)(6m2)Ch. 5.4 - Prob. 6ECh. 5.4 - Find each product: (8a6)(4a2)Ch. 5.4 - Prob. 8ECh. 5.4 - Prob. 9ECh. 5.4 - Prob. 10ECh. 5.4 - Find each product: (6n)(5n2m)Ch. 5.4 - Find each product: (9ab2)(6a2b3)Ch. 5.4 - Prob. 13ECh. 5.4 - Prob. 14ECh. 5.4 - Prob. 15ECh. 5.4 - Prob. 16ECh. 5.4 - Find each product: (8a2bc)(3ab3c2)Ch. 5.4 - Find each product: (4xy2z3)(4x5z3)Ch. 5.4 - Find each product: (23x2y)(932xy4z3)Ch. 5.4 - Prob. 20ECh. 5.4 - Prob. 21ECh. 5.4 - Prob. 22ECh. 5.4 - Prob. 23ECh. 5.4 - Prob. 24ECh. 5.4 - Prob. 25ECh. 5.4 - Use the rules for exponents to simplify: (xy)4Ch. 5.4 - Prob. 27ECh. 5.4 - Prob. 28ECh. 5.4 - Use the rules for exponents to simplify: (3x4)2Ch. 5.4 - Use the rules for exponents to simplify: (5x2)3Ch. 5.4 - Prob. 31ECh. 5.4 - Prob. 32ECh. 5.4 - Use the rules for exponents to simplify: (x2x3)2Ch. 5.4 - Prob. 34ECh. 5.4 - Prob. 35ECh. 5.4 - Prob. 36ECh. 5.4 - Use the rules for exponents to simplify: (5x3y2)2Ch. 5.4 - Prob. 38ECh. 5.4 - Prob. 39ECh. 5.4 - Prob. 40ECh. 5.4 - Prob. 41ECh. 5.4 - Prob. 42ECh. 5.4 - Prob. 43ECh. 5.4 - Use the rules for exponents to simplify: (16x4x5)3Ch. 5.4 - Use the rules for exponents to simplify: (2x3y4z)3Ch. 5.4 - Prob. 46ECh. 5.4 - Prob. 47ECh. 5.4 - Prob. 48ECh. 5.4 - Prob. 49ECh. 5.4 - Prob. 50ECh. 5.4 - Prob. 51ECh. 5.4 - Prob. 52ECh. 5.4 - Prob. 53ECh. 5.4 - Prob. 54ECh. 5.4 - Prob. 55ECh. 5.4 - Prob. 56ECh. 5.4 - Prob. 57ECh. 5.4 - Prob. 58ECh. 5.4 - Prob. 59ECh. 5.4 - Prob. 60ECh. 5.4 - Prob. 61ECh. 5.4 - Prob. 62ECh. 5.4 - Prob. 63ECh. 5.4 - Prob. 64ECh. 5.4 - Prob. 65ECh. 5.4 - Prob. 66ECh. 5.4 - Prob. 67ECh. 5.4 - Evaluate each expression when a=2andb=3: b4Ch. 5.5 - Find each product. 4(a+6)Ch. 5.5 - Prob. 2ECh. 5.5 - Prob. 3ECh. 5.5 - Prob. 4ECh. 5.5 - Prob. 5ECh. 5.5 - Prob. 6ECh. 5.5 - Prob. 7ECh. 5.5 - Prob. 8ECh. 5.5 - Prob. 9ECh. 5.5 - Prob. 10ECh. 5.5 - Find each product. 3x(4x27x2)Ch. 5.5 - Prob. 12ECh. 5.5 - Prob. 13ECh. 5.5 - Prob. 14ECh. 5.5 - Prob. 15ECh. 5.5 - Prob. 16ECh. 5.5 - Find each product. 6x3(16x2+9x4)Ch. 5.5 - Find each product. 5x4(2x3+8x21)Ch. 5.5 - Prob. 19ECh. 5.5 - Prob. 20ECh. 5.5 - Prob. 21ECh. 5.5 - Prob. 22ECh. 5.5 - Prob. 23ECh. 5.5 - Prob. 24ECh. 5.5 - Prob. 25ECh. 5.5 - Prob. 26ECh. 5.5 - Prob. 27ECh. 5.5 - Prob. 28ECh. 5.5 - Prob. 29ECh. 5.5 - Prob. 30ECh. 5.5 - Prob. 31ECh. 5.5 - Prob. 32ECh. 5.5 - Prob. 33ECh. 5.5 - Prob. 34ECh. 5.5 - Prob. 35ECh. 5.5 - Prob. 36ECh. 5.5 - Find each product. (x+1)(x+6)Ch. 5.5 - Prob. 38ECh. 5.5 - Prob. 39ECh. 5.5 - Prob. 40ECh. 5.5 - Prob. 41ECh. 5.5 - Prob. 42ECh. 5.5 - Prob. 43ECh. 5.5 - Prob. 44ECh. 5.5 - Find each product. (6a+4)(2a3)Ch. 5.5 - Prob. 46ECh. 5.5 - Prob. 47ECh. 5.5 - Prob. 48ECh. 5.5 - Prob. 49ECh. 5.5 - Prob. 50ECh. 5.5 - Prob. 51ECh. 5.5 - Prob. 52ECh. 5.5 - Prob. 53ECh. 5.5 - Prob. 54ECh. 5.5 - Prob. 55ECh. 5.5 - Prob. 56ECh. 5.5 - Prob. 57ECh. 5.5 - Prob. 58ECh. 5.5 - Prob. 59ECh. 5.5 - Prob. 60ECh. 5.5 - Prob. 61ECh. 5.5 - Prob. 62ECh. 5.5 - Find each product. (g+h6)(gh+3)Ch. 5.5 - Find each product. (2x3y+4)(4x5y2)Ch. 5.5 - Find each product. (8xx3+2x41)(x2+2+5x3)Ch. 5.5 - Prob. 66ECh. 5.6 - Divide: 9x53x3Ch. 5.6 - Prob. 2ECh. 5.6 - Divide: 18x1212x4Ch. 5.6 - Prob. 4ECh. 5.6 - Prob. 5ECh. 5.6 - Prob. 6ECh. 5.6 - Divide: 8x212xCh. 5.6 - Prob. 8ECh. 5.6 - Prob. 9ECh. 5.6 - Prob. 10ECh. 5.6 - Prob. 11ECh. 5.6 - Prob. 12ECh. 5.6 - Prob. 13ECh. 5.6 - Prob. 14ECh. 5.6 - Prob. 15ECh. 5.6 - Prob. 16ECh. 5.6 - Divide: 0(113w2r3)Ch. 5.6 - Prob. 18ECh. 5.6 - Prob. 19ECh. 5.6 - Divide: (42x2y3)(14x2y4)Ch. 5.6 - Prob. 21ECh. 5.6 - Prob. 22ECh. 5.6 - Prob. 23ECh. 5.6 - Prob. 24ECh. 5.6 - Divide: 92x3y28xy3Ch. 5.6 - Prob. 26ECh. 5.6 - Prob. 27ECh. 5.6 - Prob. 28ECh. 5.6 - Prob. 29ECh. 5.6 - Prob. 30ECh. 5.6 - Prob. 31ECh. 5.6 - Prob. 32ECh. 5.6 - Prob. 33ECh. 5.6 - Prob. 34ECh. 5.6 - Prob. 35ECh. 5.6 - Prob. 36ECh. 5.6 - Divide: 24a416a28a8Ch. 5.6 - Prob. 38ECh. 5.6 - Prob. 39ECh. 5.6 - Prob. 40ECh. 5.6 - Divide: bx4bx3+bx24bxbxCh. 5.6 - Prob. 42ECh. 5.6 - Prob. 43ECh. 5.6 - Prob. 44ECh. 5.6 - Divide: 224x4y2z3168x3y2z4112xy4z228xy2z2Ch. 5.6 - Prob. 46ECh. 5.6 - Prob. 47ECh. 5.6 - Divide: 3a2b+4a2b26ab22ab2Ch. 5.6 - Prob. 49ECh. 5.6 - Divide: 18w4r4+27w3r336w2r29w3r3Ch. 5.7 - Find each quotient and check: (x2+3x+2)(x+1)Ch. 5.7 - Prob. 2ECh. 5.7 - Prob. 3ECh. 5.7 - Prob. 4ECh. 5.7 - Prob. 5ECh. 5.7 - Prob. 6ECh. 5.7 - Find each quotient and check: 2y2+3y52y1Ch. 5.7 - Prob. 8ECh. 5.7 - Prob. 9ECh. 5.7 - Prob. 10ECh. 5.7 - Prob. 11ECh. 5.7 - Find each quotient and check: (8x318x2+7x+3)(x1)Ch. 5.7 - Find each quotient and check:...Ch. 5.7 - Prob. 14ECh. 5.7 - Find each quotient and check: 2x314x12x+1Ch. 5.7 - Prob. 16ECh. 5.7 - Prob. 17ECh. 5.7 - Prob. 18ECh. 5.7 - Prob. 19ECh. 5.7 - Find each quotient and check: 2x3+3x29x+5x+3Ch. 5.7 - Prob. 21ECh. 5.7 - Prob. 22ECh. 5.7 - Prob. 23ECh. 5.7 - Prob. 24ECh. 5.7 - Find each quotient and check: 8x312x+1Ch. 5.7 - Prob. 26ECh. 5.7 - Prob. 27ECh. 5.7 - Prob. 28ECh. 5.7 - Prob. 29ECh. 5.7 - Find each quotient and check:...Ch. 5 - Prob. 1RCh. 5 - Prob. 2RCh. 5 - For any number a expect 0, a,a1a=?Ch. 5 - Evaluate: 104(3)Ch. 5 - Evaluate: 2+342Ch. 5 - Evaluate: (4)(12)623+1832Ch. 5 - In Exercises 7-12, let x=3andy=2 . Evaluate each...Ch. 5 - In Exercises 7-12, let x=3andy=2 . Evaluate each...Ch. 5 - In Exercises 7-12, let x=3andy=2 . Evaluate each...Ch. 5 - In Exercises 7-12, let x=3andy=2 . Evaluate each...Ch. 5 - In Exercises 7-12, let x=3andy=2 . Evaluate each...Ch. 5 - In Exercises 7-12, let x=3andy=2 . Evaluate each...Ch. 5 - In Exercises 13-16, simplify by removing the...Ch. 5 - In Exercises 13-16, simplify by removing the...Ch. 5 - In Exercises 13-16, simplify by removing the...Ch. 5 - In Exercises 13-16, simplify by removing the...Ch. 5 - Prob. 17RCh. 5 - Prob. 18RCh. 5 - Perform the indicated operation:...Ch. 5 - Perform the indicated operation:...Ch. 5 - Perform the indicated operation:...Ch. 5 - Perform the indicated operation: (6x2)(4x3)Ch. 5 - Perform the indicated operation: (7x2y)(8x3y2)Ch. 5 - Prob. 24RCh. 5 - Perform the indicated operation: 5a(3a+4b)Ch. 5 - Prob. 26RCh. 5 - Perform the indicated operation: (5x+3)(3x4)Ch. 5 - Prob. 28RCh. 5 - Perform the indicated operation: (49x2)(7x3)Ch. 5 - Prob. 30RCh. 5 - Perform the indicated operation: 36a327a2+9a9aCh. 5 - Perform the indicated operation: 6x2+x122x+3Ch. 5 - Perform the indicated operation: 3x3+2x26x+4x+2Ch. 5 - Evaluate: 35242Ch. 5 - Evaluate: 12232+331622Ch. 5 - Prob. 3TCh. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify: Add:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...Ch. 5 - Perform the indicated operation and simplify:...
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- 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? 2arrow_forwardQuestion 1. Your manager asks you to explain why the Black-Scholes model may be inappro- priate for pricing options in practice. Give one reason that would substantiate this claim? Question 2. We consider stock #1 and stock #2 in the model of Problem 2. Your manager asks you to pick only one of them to invest in based on the model provided. Which one do you choose and why ? Question 3. Let (St) to be an asset modeled by the Black-Scholes SDE. Let Ft be the price at time t of a European put with maturity T and strike price K. Then, the discounted option price process (ert Ft) t20 is a martingale. True or False? (Explain your answer.) Question 4. You are considering pricing an American put option using a Black-Scholes model for the underlying stock. An explicit formula for the price doesn't exist. In just a few words (no more than 2 sentences), explain how you would proceed to price it. Question 5. We model a short rate with a Ho-Lee model drt = ln(1+t) dt +2dWt. Then the interest rate…arrow_forwardIn 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.)arrow_forward
- 3. Consider the polynomial equation 6-iz+7z² - iz³ +z = 0 for which the roots are 3i, -2i, -i, and i. (a) Verify the relations between this roots and the coefficients of the polynomial. (b) Find the annulus region in which the roots lie.arrow_forwardThe managing director of a consulting group has the accompanying monthly data on total overhead costs and professional labor hours to bill to clients. Complete parts a through c. Question content area bottom Part 1 a. Develop a simple linear regression model between billable hours and overhead costs. Overhead Costsequals=212495.2212495.2plus+left parenthesis 42.4857 right parenthesis42.485742.4857times×Billable Hours (Round the constant to one decimal place as needed. Round the coefficient to four decimal places as needed. Do not include the $ symbol in your answers.) Part 2 b. Interpret the coefficients of your regression model. Specifically, what does the fixed component of the model mean to the consulting firm? Interpret the fixed term, b 0b0, if appropriate. Choose the correct answer below. A. The value of b 0b0 is the predicted billable hours for an overhead cost of 0 dollars. B. It is not appropriate to interpret b 0b0, because its value…arrow_forward3. Consider the polynomial equation 6-iz+7z2-iz³ +z = 0 for which the roots are 3i, -2i, -i, and i. (a) Verify the relations between this roots and the coefficients of the polynomial. (b) Find the annulus region in which the roots lie.arrow_forward
- Write the equation of the trigonometric function shown in the graph. LO 5 4 3 2 1 y -5 -5 4 8 8 500 -1 -2 -3 -4 -5 x 5 15л 5л 25л 15л 35π 5л 4 8 2 8 4 8arrow_forwardc) Using only Laplace transforms solve the following Samuelson model given below i.e., the second order difference equation (where yt is national income): - Yt+2 6yt+1+5y₁ = 0, if y₁ = 0 for t < 0, and y₁ = 0, y₁ = 1 1-e-s You may use without proof that L-1[s(1-re-s)] = f(t) = r² for n ≤tarrow_forward5. 156 m/WXY = 59° 63 E 7. B E 101 C mFE = 6. 68° 8. C 17arrow_forwardScoring: MATH 15 FILING /10 COMPARISON /10 RULER I 13 Express EMPLOYMENT PROFESSIONALS NAME: SKILLS EVALUATION TEST- Light Industrial MATH-Solve the following problems. (Feel free to use a calculator.) DATE: 1. If you were asked to load 225 boxes onto a truck, and the boxes are crated, with each crate containing nine boxes, how many crates would you need to load? 2. Imagine you live only one mile from work and you decide to walk. If you walk four miles per hour, how long will it take you to walk one mile? 3. Add 3 feet 6 inches + 8 feet 2 inches + 4 inches + 2 feet 5 inches. 4. In a grocery store, steak costs $3.85 per pound. If you buy a three-pound steak and pay for it with a $20 bill, how much change will you get? 5. Add 8 minutes 32 seconds + 37 minutes 18 seconds + 15 seconds. FILING - In the space provided, write the number of the file cabinet where the company should be filed. Example: File Cabinet #4 Elson Co. File Cabinets: 1. Aa-Bb 3. Cg-Dz 5. Ga-Hz 7. La-Md 9. Na-Oz 2. Bc-Cf…arrow_forwardpart 3 of the question is: A power outage occurs 6 min after the ride started. Passengers must wait for their cage to be manually cranked into the lowest position in order to exit the ride. Sine function model: where h is the height of the last passenger above the ground measured in feet and t is the time of operation of the ride in minutes. What is the height of the last passenger at the moment of the power outage? Verify your answer by evaluating the sine function model. Will the last passenger to board the ride need to wait in order to exit the ride? Explain.arrow_forwardIf you were asked to load 225 boxes onto a truck, and the boxes are crated, with each crate containing nine boxes, how many crates would you need to load?arrow_forwardarrow_back_iosSEE MORE QUESTIONSarrow_forward_ios
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