Elementary Statistics: Picturing the World (7th Edition)
7th Edition
ISBN: 9780134683416
Author: Ron Larson, Betsy Farber
Publisher: PEARSON
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Chapter 8, Problem 1T
To determine
To test: The claim that the proportion of coins found lying heads up is 0.5.
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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.)
Chapter 8 Solutions
Elementary Statistics: Picturing the World (7th Edition)
Ch. 8.1 - Classify each pair of samples as independent or...Ch. 8.1 - A survey indicates that the mean annual wages for...Ch. 8.1 - A travel agency claims that the average daily cost...Ch. 8.1 - What is the difference between two samples that...Ch. 8.1 - Explain how to perform a two-sample z-test for the...Ch. 8.1 - Describe another way you can perform a hypothesis...Ch. 8.1 - What conditions are necessary in order to use the...Ch. 8.1 - Prob. 5ECh. 8.1 - Prob. 6ECh. 8.1 - Independent and Dependent Samples In Exercises 58,...
Ch. 8.1 - Prob. 8ECh. 8.1 - In Exercises 9 and 10, use the TI-H4 Plus display...Ch. 8.1 - Prob. 10ECh. 8.1 - Prob. 11ECh. 8.1 - In Exercises 1114, test the claim about the...Ch. 8.1 - In Exercises 1114, test the claim about the...Ch. 8.1 - Prob. 14ECh. 8.1 - Testing the Difference Between Two Means In...Ch. 8.1 - Testing the Difference Between Two Means In...Ch. 8.1 - Prob. 17ECh. 8.1 - Prob. 18ECh. 8.1 - Prob. 19ECh. 8.1 - Testing the Difference Between Two Means In...Ch. 8.1 - Testing the Difference Between Two Means In...Ch. 8.1 - Prob. 22ECh. 8.1 - Prob. 23ECh. 8.1 - Prob. 24ECh. 8.1 - Prob. 25ECh. 8.1 - Getting at the Concept Explain why the null...Ch. 8.1 - Testing a Difference Other Than Zero Sometimes a...Ch. 8.1 - Testing a Difference Other Than Zero Sometimes a...Ch. 8.1 - Prob. 29ECh. 8.1 - Architect Salaries Construct a 99% confidence...Ch. 8.2 - The annual earnings of 25 people with a high...Ch. 8.2 - A manufacturer claims that the mean driving cost...Ch. 8.2 - What conditions are necessary in order to use the...Ch. 8.2 - 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