Fundamentals of Statistics (5th Edition)
5th Edition
ISBN: 9780134508306
Author: Michael Sullivan III
Publisher: PEARSON
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Chapter 8, Problem 18CS
Construct histograms for each column of summary statistics. Describe the effect, if any, of increasing 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 8 Solutions
Fundamentals of Statistics (5th Edition)
Ch. 8.1 - The _____ _____ of the sample mean, x, is the...Ch. 8.1 - Suppose a simple random sample of size n is drawn...Ch. 8.1 - The standard deviation of the sampling...Ch. 8.1 - True or False: The distribution of the sample...Ch. 8.1 - True or False: The distribution of the sample...Ch. 8.1 - True or False: To cut the standard error of the...Ch. 8.1 - A simple random sample of size n = 10 is obtained...Ch. 8.1 - A simple random sample of size n = 40 is obtained...Ch. 8.1 - In Problems 912, determine x and x from the given...Ch. 8.1 - In Problems 912, determine x and x from the given...
Ch. 8.1 - In Problems 912, determine x and x from the given...Ch. 8.1 - In Problems 912, determine x and x from the given...Ch. 8.1 - Answer the following questions for the sampling...Ch. 8.1 - Answer the following questions for the sampling...Ch. 8.1 - A simple random sample of size n = 49 is obtained...Ch. 8.1 - A simple random sample of size n = 36 is obtained...Ch. 8.1 - A simple random sample of size n = 12 is obtained...Ch. 8.1 - A simple random sample of size n = 20 is obtained...Ch. 8.1 - NW Gestation Period The length of human...Ch. 8.1 - Upper Leg Length The upper leg length of 20- to...Ch. 8.1 - Reading Rates The reading speed of second grade...Ch. 8.1 - Old Faithful The most famous geyser in the world....Ch. 8.1 - Rates of Return in Stocks The SP 500 is a...Ch. 8.1 - Winning Poker A very good poker player is expected...Ch. 8.1 - NW Oil Change The shape of the distribution of the...Ch. 8.1 - Time Spent in the Drive-Through The...Ch. 8.1 - Insect Fragments The Food and Drug Administration...Ch. 8.1 - Burger Kings Drive-Through Suppose that cars...Ch. 8.1 - Watching Television The amount of time Americans...Ch. 8.1 - ATM Withdrawals According to Crown ATM Network,...Ch. 8.1 - Sampling Distributions The following data...Ch. 8.1 - Sampling Distributions The following data...Ch. 8.1 - Putting It Together: Playing Roulette In the game...Ch. 8.1 - Explain what a sampling distribution is.Ch. 8.1 - State the Central Limit Theorem.Ch. 8.1 - We assume that we are obtaining simple random...Ch. 8.1 - Without doing any computation, decide which has a...Ch. 8.1 - For the three probability distributions shown,...Ch. 8.1 - Suppose Jack and Diane are each attempting to use...Ch. 8.1 - Sleepy Suppose you want to study the number of...Ch. 8.1 - Sleepy Again Suppose you want to study the number...Ch. 8.1 - Bull Markets A bull market is defined as a market...Ch. 8.2 - In a town of 500 households, 220 have a dog. The...Ch. 8.2 - The _____ _____, denoted p, is given by the...Ch. 8.2 - True or False: The population proportion and...Ch. 8.2 - True or False: The mean of the sampling...Ch. 8.2 - Describe the circumstances under which the shape...Ch. 8.2 - What happens to the standard deviation of p as the...Ch. 8.2 - In Problems 710, describe the sampling...Ch. 8.2 - In Problems 710, describe the sampling...Ch. 8.2 - In Problems 710, describe the sampling...Ch. 8.2 - In Problems 710, describe the sampling...Ch. 8.2 - A simple random sample of size n = 75 is obtained...Ch. 8.2 - A simple random sample of size n = 200 is obtained...Ch. 8.2 - Prob. 13AYUCh. 8.2 - A simple random sample of size n = 1460 is...Ch. 8.2 - Foreign Language According to a study done by...Ch. 8.2 - Are You Satisfied? According to a study done by...Ch. 8.2 - NW Marriage Obsolete? According to a study done by...Ch. 8.2 - Credit Cards According to creditcard.com, 29% of...Ch. 8.2 - Afraid to Fly According to a study conducted by...Ch. 8.2 - Having Children? The Pew Research Center recently...Ch. 8.2 - Election Prediction Exit polling is a popular...Ch. 8.2 - Acceptance Sampling A shipment of 50,000...Ch. 8.2 - Social Security Reform A researcher studying...Ch. 8.2 - Prob. 24AYUCh. 8.2 - Reincarnation Suppose 21% of all American teens...Ch. 8.2 - Assessments Consider the homeowners association...Ch. 8.2 - Airline Reservations In Chapter 6, We learned that...Ch. 8.2 - Finite Population Correction Factor In this...Ch. 8.2 - Fumbles The New England Patriots made headlines...Ch. 8 - In your own words, explain what a sampling...Ch. 8 - Prob. 2RECh. 8 - Under what conditions is the sampling distribution...Ch. 8 - Prob. 4RECh. 8 - Energy Need during Pregnancy The total energy need...Ch. 8 - Copper Tubing A machine at KA Tube Manufacturing...Ch. 8 - Number of Televisions Based on data obtained from...Ch. 8 - Entrepreneurship A Gallup survey indicated that...Ch. 8 - Advanced Degrees According to the U.S. Census...Ch. 8 - Variability in Baseball Suppose, during the course...Ch. 8 - Prob. 1CTCh. 8 - Prob. 2CTCh. 8 - The charge life of a certain lithium ion battery...Ch. 8 - A machine used for filling plastic bottles with a...Ch. 8 - Prob. 5CTCh. 8 - Prob. 6CTCh. 8 - Prob. 7CTCh. 8 - Using statistical software, generate 250 samples...Ch. 8 - Prob. 2CSCh. 8 - Prob. 3CSCh. 8 - Prob. 4CSCh. 8 - Prob. 5CSCh. 8 - Prob. 6CSCh. 8 - Prob. 7CSCh. 8 - Prob. 8CSCh. 8 - Prob. 9CSCh. 8 - Prob. 10CSCh. 8 - Prob. 11CSCh. 8 - Prob. 12CSCh. 8 - Repeat parts 11 and 12 for samples of size 20...Ch. 8 - Prob. 14CSCh. 8 - How do the averages of your sample means compare...Ch. 8 - Prob. 16CSCh. 8 - Prob. 17CSCh. 8 - Construct histograms for each column of summary...Ch. 8 - Prob. 19CS
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- Business discussarrow_forwardBusiness discussarrow_forwardI just need to know why this is wrong below: What is the test statistic W? W=5 (incorrect) and What is the p-value of this test? (p-value < 0.001-- incorrect) Use the Wilcoxon signed rank test to test the hypothesis that the median number of pages in the statistics books in the library from which the sample was taken is 400. A sample of 12 statistics books have the following numbers of pages pages 127 217 486 132 397 297 396 327 292 256 358 272 What is the sum of the negative ranks (W-)? 75 What is the sum of the positive ranks (W+)? 5What type of test is this? two tailedWhat is the test statistic W? 5 These are the critical values for a 1-tailed Wilcoxon Signed Rank test for n=12 Alpha Level 0.001 0.005 0.01 0.025 0.05 0.1 0.2 Critical Value 75 70 68 64 60 56 50 What is the p-value for this test? p-value < 0.001arrow_forward
- ons 12. A sociologist hypothesizes that the crime rate is higher in areas with higher poverty rate and lower median income. She col- lects data on the crime rate (crimes per 100,000 residents), the poverty rate (in %), and the median income (in $1,000s) from 41 New England cities. A portion of the regression results is shown in the following table. Standard Coefficients error t stat p-value Intercept -301.62 549.71 -0.55 0.5864 Poverty 53.16 14.22 3.74 0.0006 Income 4.95 8.26 0.60 0.5526 a. b. Are the signs as expected on the slope coefficients? Predict the crime rate in an area with a poverty rate of 20% and a median income of $50,000. 3. Using data from 50 workarrow_forward2. The owner of several used-car dealerships believes that the selling price of a used car can best be predicted using the car's age. He uses data on the recent selling price (in $) and age of 20 used sedans to estimate Price = Po + B₁Age + ε. A portion of the regression results is shown in the accompanying table. Standard Coefficients Intercept 21187.94 Error 733.42 t Stat p-value 28.89 1.56E-16 Age -1208.25 128.95 -9.37 2.41E-08 a. What is the estimate for B₁? Interpret this value. b. What is the sample regression equation? C. Predict the selling price of a 5-year-old sedan.arrow_forwardian income of $50,000. erty rate of 13. Using data from 50 workers, a researcher estimates Wage = Bo+B,Education + B₂Experience + B3Age+e, where Wage is the hourly wage rate and Education, Experience, and Age are the years of higher education, the years of experience, and the age of the worker, respectively. A portion of the regression results is shown in the following table. ni ogolloo bash 1 Standard Coefficients error t stat p-value Intercept 7.87 4.09 1.93 0.0603 Education 1.44 0.34 4.24 0.0001 Experience 0.45 0.14 3.16 0.0028 Age -0.01 0.08 -0.14 0.8920 a. Interpret the estimated coefficients for Education and Experience. b. Predict the hourly wage rate for a 30-year-old worker with four years of higher education and three years of experience.arrow_forward
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