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 7.2, Problem 13E
To determine
To construct: The 95% confidence interval for the true
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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
Elementary Statistics: A Step-by-Step Approach with Formula Card
Ch. 7.1 - What is the difference between a point estimate...Ch. 7.1 - What information is necessary to calculate a...Ch. 7.1 - What is the margin of error?Ch. 7.1 - What is meant by the 95% confidence interval of...Ch. 7.1 - What are three properties of a good estimator?Ch. 7.1 - What statistic best estimates ?Ch. 7.1 - Find each. a. z/2 for the 99% confidence interval...Ch. 7.1 - What is necessary to determine the sample size?Ch. 7.1 - Fuel Efficiency of Cars and Trucks Since 1975 the...Ch. 7.1 - Fast-Food Bills for Drive-Thru Customers A random...
Ch. 7.1 - Prob. 11ECh. 7.1 - Number of Jobs A sociologist found that in a...Ch. 7.1 - Number of Faculty The numbers of faculty at 32...Ch. 7.1 - Freshmen GPAs First-semester GPAs for a random...Ch. 7.1 - Carbohydrate Grams in Commercial Subs The number...Ch. 7.1 - Number of Farms A random sample of the number of...Ch. 7.1 - Prob. 17ECh. 7.1 - Day Care Tuition A random sample of 50...Ch. 7.1 - Hospital Noise Levels Noise levels at various area...Ch. 7.1 - Length of Growing Seasons The growing seasons for...Ch. 7.1 - Prob. 21ECh. 7.1 - Hospital Noise Levels In the hospital study cited...Ch. 7.1 - Prob. 23ECh. 7.1 - Cost of Pizzas A pizza shop owner wishes to find...Ch. 7.1 - Prob. 25ECh. 7.1 - Undergraduate GPAs It is desired to estimate the...Ch. 7.2 - Sport Drink Decision Assume you get a new job as a...Ch. 7.2 - What are the properties of the t distribution?Ch. 7.2 - What is meant by degrees of freedom?Ch. 7.2 - Find the values for each. a. t/2 and n = 18 for...Ch. 7.2 - When should the t distribution be used to find a...Ch. 7.2 - Prob. 5ECh. 7.2 - Prob. 6ECh. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - Prob. 13ECh. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - Prob. 15ECh. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - For Exercises 5 through 20, assume that all...Ch. 7.2 - Parking Meter Revenue A one-sided confidence...Ch. 7.3 - Contracting Influenza To answer the questions, use...Ch. 7.3 - In each case, find p and q. a. n = 80 and X = 40...Ch. 7.3 - Find p and q for each situation. a. n = 60 and X =...Ch. 7.3 - Prob. 3ECh. 7.3 - Prob. 4ECh. 7.3 - Prob. 5ECh. 7.3 - Belief in Haunted Places A random sample of 205...Ch. 7.3 - Prob. 7ECh. 7.3 - Travel to Outer Space A CBS News/New York Times...Ch. 7.3 - High School Graduates Who Take the SAT The...Ch. 7.3 - Educational Television In a random sample of 200...Ch. 7.3 - Prob. 11ECh. 7.3 - Students Who Major in Business It has been...Ch. 7.3 - Prob. 13ECh. 7.3 - Prob. 14ECh. 7.3 - Overseas Travel A researcher wishes to be 95%...Ch. 7.3 - Widows A recent study indicated that 29% of the...Ch. 7.3 - Direct Satellite Television It is believed that...Ch. 7.3 - Obesity Obesity is defined as a body mass index...Ch. 7.3 - Prob. 19ECh. 7.3 - Diet Habits A federal report indicated that 27% of...Ch. 7.3 - Gun Control If a random sample of 600 people is...Ch. 7.3 - Survey on Politics In a study, 68% of 1015...Ch. 7.4 - Ages of Presidents at the Time of Their Deaths...Ch. 7.4 - What distribution must be used when computing...Ch. 7.4 - What assumption must be made when computing...Ch. 7.4 - Using Table G, find the values for 2 left and 2...Ch. 7.4 - Lifetimes of Wristwatches Find the 90% confidence...Ch. 7.4 - Carbohydrates in Yogurt The number of...Ch. 7.4 - Carbon Monoxide Deaths A study of...Ch. 7.4 - Prob. 7ECh. 7.4 - Age of College Students Find the 90% confidence...Ch. 7.4 - Prob. 9ECh. 7.4 - Stock Prices A random sample of stock prices per...Ch. 7.4 - Prob. 11ECh. 7.4 - Home Ownership Rates The percentage rates of home...Ch. 7.4 - Calories in a Standard Size Candy Bar Estimate the...Ch. 7.4 - SAT Scores Estimate the variance in mean...Ch. 7.4 - Daily Cholesterol Intake The American Heart...Ch. 7.4 - Calculator Battery Lifetimes A confidence interval...Ch. 7 - Prob. 7.1.1RECh. 7 - Vacation Days A U.S. Travel Data Center survey...Ch. 7 - Prob. 7.1.3RECh. 7 - Shopping Survey A random sample of 49 shoppers...Ch. 7 - Lengths of Childrens Animated Films The lengths...Ch. 7 - Dog Bites to Postal Workers For a certain urban...Ch. 7 - Prob. 7.3.7RECh. 7 - Vacation Sites A U.S. Travel Data Centers survey...Ch. 7 - Prob. 7.3.9RECh. 7 - Adult Educational Activities A local county has a...Ch. 7 - Prob. 7.3.11RECh. 7 - Child Care Programs A study found that 73% of...Ch. 7 - Baseball Diameters The standard deviation of the...Ch. 7 - Cost of an Operation A medical researcher surveyed...Ch. 7 - Lifetimes of Snowmobiles A random sample of 15...Ch. 7 - Length of Childrens Animated Films Use the data...Ch. 7 - From the Data Bank choose a variable, find the...Ch. 7 - Repeat Exercise 1, using a different variable and...Ch. 7 - Repeat Exercise 1, using a proportion. For...Ch. 7 - From Data Set III in Appendix B, select a sample...Ch. 7 - From Data Set VI in Appendix B, select a sample of...Ch. 7 - Select a random sample of 20 of the record high...Ch. 7 - Determine whether each statement is true or false....Ch. 7 - Determine whether each statement is true or false....Ch. 7 - Determine whether each statement is true or false....Ch. 7 - Determine whether each statement is true or false....Ch. 7 - When a 99% confidence interval is calculated...Ch. 7 - The best point estimate of the population mean is...Ch. 7 - When the population standard deviation is unknown...Ch. 7 - Complete the following statements with the best...Ch. 7 - Complete the following statements with the best...Ch. 7 - Complete the following statements with the best...Ch. 7 - Complete the following statements with the best...Ch. 7 - Cost of Texts An irate student complained that the...Ch. 7 - Doctor Visit Costs An irate patient complained...Ch. 7 - Weights of Minivans The average weight of 40...Ch. 7 - Ages of Insurance Representatives In a study of 10...Ch. 7 - Prob. 16CQCh. 7 - Burglaries For a certain urban area, it was found...Ch. 7 - Hours Spent Studying A university dean wishes to...Ch. 7 - Prob. 19CQCh. 7 - Prob. 20CQCh. 7 - Prob. 21CQCh. 7 - Prob. 22CQCh. 7 - Prob. 23CQCh. 7 - Prob. 24CQCh. 7 - Prob. 25CQCh. 7 - Prob. 26CQCh. 7 - Critical Thinking Challenges A confidence interval...
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