EBK MATLAB: AN INTRODUCTION WITH APPLIC
6th Edition
ISBN: 8220103113663
Author: GILAT
Publisher: YUZU
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Chapter 7, Problem 17P
As shown in the figure, the area of a convex
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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 7 Solutions
EBK MATLAB: AN INTRODUCTION WITH APPLIC
Ch. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - In the U.S. fuel efficiency of cars is specified...Ch. 7 - Pressure in U.S. customary units is measured in...Ch. 7 - Tables of material properties list density, in...Ch. 7 - Write a user-defined MATLAB function that converts...Ch. 7 - The body surface area (BSA) in m2 of a person...Ch. 7 - The fuel tank shown in the figure in shad as a...Ch. 7 - A paper cup is designed to have a geometry of a...Ch. 7 - The relative humidity, RH, at sea level can be...
Ch. 7 - Write a user-defined function that calculates...Ch. 7 - Write a user-defined MATLAB function that...Ch. 7 - Write a user-defined MATLAB function that...Ch. 7 - Write a user-defined MATLAB function that...Ch. 7 - Prob. 15PCh. 7 - The area of a triangle ABC can be calculated by:...Ch. 7 - As shown in the figure, the area of a convex...Ch. 7 - Write a user-defined function that determines the...Ch. 7 - Write a user-defined MATLAB function that converts...Ch. 7 - Write a user-defined function that plots a...Ch. 7 - Write a user-defined function that plots an...Ch. 7 - Prob. 22PCh. 7 - Write a user-defined function that determines if a...Ch. 7 - The harmonic mean H of a set of n positive numbers...Ch. 7 - Write a user-defined function that determines the...Ch. 7 - Write a user-defined function that determines the...Ch. 7 - Write a user-defined function that sorts the...Ch. 7 - Write a user-defined function that sorts the...Ch. 7 - Write a user-defined MATLAB function that finds...Ch. 7 - Write a user-defined MATLAB function that...Ch. 7 - The shortest distance between two points on the...Ch. 7 - Delta rosette is a set of three strain gages...Ch. 7 - In a lottery the player has to select several...Ch. 7 - 34. The Taylor series expansion for sin x about x...Ch. 7 - Write a user-defined function that determines the...Ch. 7 - The area moment of inertia Ixe of a rectangle...Ch. 7 - The simple RC high-pass filter shown in the figure...Ch. 7 - A circuit that filters out a certain frequency is...Ch. 7 - The first derivative df(x)dx a function f(x) at a...Ch. 7 - In lottery the player has to guess correctly r...
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