MYLAB MATH FOR EXCURSIONS IN MATHEMATIC
9th Edition
ISBN: 9780136415893
Author: Tannenbaum
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Chapter 7, Problem 49E
To determine
To explain:
Weighted networks have only one MST and one MaxST.
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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 7 Solutions
MYLAB MATH FOR EXCURSIONS IN MATHEMATIC
Ch. 7 - A computer lab has seven computers labeled A...Ch. 7 - The following is a list of the electrical power...Ch. 7 - Consider the network shown in Fig.720_. a. How...Ch. 7 - Consider the network shown in Fig.721_. a. How...Ch. 7 - Consider once again the network shown in. Fig720_....Ch. 7 - Consider once again the network shown in. Fig721_....Ch. 7 - Consider the network shown in. Fig722. This is the...Ch. 7 - Consider the network shown in. Fig723_. This is...Ch. 7 - Consider the tree shown in. Fig724_. a. How many...Ch. 7 - Consider the tree shown in. Fig725. a. How many...
Ch. 7 - In Exercises 11 through 24 you are given...Ch. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Prob. 14ECh. 7 - In Exercises 11 through 24 you are given...Ch. 7 - Prob. 16ECh. 7 - Prob. 17ECh. 7 - Prob. 18ECh. 7 - Prob. 19ECh. 7 - In Exercises 11 through 24 you are given...Ch. 7 - Prob. 21ECh. 7 - Prob. 22ECh. 7 - Prob. 23ECh. 7 - Prob. 24ECh. 7 - Prob. 25ECh. 7 - Consider the network shown in Fig.727_. a. Find a...Ch. 7 - Prob. 27ECh. 7 - Consider the network shown in Fig.729_. a. Find a...Ch. 7 - Prob. 29ECh. 7 - Prob. 30ECh. 7 - Prob. 31ECh. 7 - Prob. 32ECh. 7 - Prob. 33ECh. 7 - Prob. 34ECh. 7 - Prob. 35ECh. 7 - The 4 by 5 grid shown in Fig. 7-37 represents a...Ch. 7 - Prob. 37ECh. 7 - Find the MST of the network shown in Fig. 7-39...Ch. 7 - Find the MST of the network shown in Fig. 7-40...Ch. 7 - Find the MST of the network shown in Fig. 7-41...Ch. 7 - Prob. 41ECh. 7 - Find the MaxST of the network shown in Fig. 7-39...Ch. 7 - Find the MaxST of the network shown in Fig. 7-40...Ch. 7 - Prob. 44ECh. 7 - The mileage chart in Fig. 742 shows the distances...Ch. 7 - Figure 7-43a shows a network of roads connecting...Ch. 7 - Prob. 47ECh. 7 - Prob. 48ECh. 7 - Prob. 49ECh. 7 - This exercise refers to weighted networks where...Ch. 7 - Prob. 51ECh. 7 - Prob. 52ECh. 7 - Prob. 53ECh. 7 - Prob. 54ECh. 7 - Prob. 55ECh. 7 - Prob. 56ECh. 7 - A bipartite graph is a graph with the property...Ch. 7 - Prob. 58ECh. 7 - Prob. 59E
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