EBK ESSENTIAL STATISTICS FOR THE BEHAVI
2nd Edition
ISBN: 9781506386287
Author: PRIVITERA
Publisher: VST
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Chapter 8, Problem 25CAP
To determine
To compute: The point estimate for the provided confidence interval.
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This problem is based on the fundamental option pricing formula for the continuous-time
model developed in class, namely the value at time 0 of an option with maturity T and
payoff F is given by:
We consider the two options below:
Fo=
-rT
= e
Eq[F].
1
A. An option with which you must buy a share of stock at expiration T = 1 for strike
price K = So.
B. An option with which you must buy a share of stock at expiration T = 1 for strike
price K given by
T
K =
T
St dt.
(Note that both options can have negative payoffs.) We use the continuous-time Black-
Scholes model to price these options. Assume that the interest rate on the money market
is r.
(a) Using the fundamental option pricing formula, find the price of option A. (Hint:
use the martingale properties developed in the lectures for the stock price process
in order to calculate the expectations.)
(b) Using the fundamental option pricing formula, find the price of option B.
(c) Assuming the interest rate is very small (r ~0), use Taylor…
Discuss and explain in the picture
Bob and Teresa each collect their own samples to test the same hypothesis. Bob’s p-value turns out to be 0.05, and Teresa’s turns out to be 0.01.
Why don’t Bob and Teresa get the same p-values?
Who has stronger evidence against the null hypothesis: Bob or Teresa?
Chapter 8 Solutions
EBK ESSENTIAL STATISTICS FOR THE BEHAVI
Ch. 8 - Prob. 1FPCh. 8 - Prob. 2FPCh. 8 - Prob. 3FPCh. 8 - Prob. 4FPCh. 8 - Prob. 5FPCh. 8 - Prob. 6FPCh. 8 - Prob. 7FPCh. 8 - Prob. 8FPCh. 8 - Prob. 9FPCh. 8 - Prob. 10FP
Ch. 8 - Prob. 11CAPCh. 8 - Prob. 12CAPCh. 8 - Prob. 13CAPCh. 8 - Prob. 14CAPCh. 8 - Prob. 15CAPCh. 8 - Prob. 16CAPCh. 8 - Prob. 17CAPCh. 8 - Prob. 18CAPCh. 8 - Prob. 19CAPCh. 8 - Prob. 20CAPCh. 8 - Prob. 21CAPCh. 8 - Prob. 22CAPCh. 8 - Prob. 23CAPCh. 8 - Prob. 24CAPCh. 8 - Prob. 25CAPCh. 8 - Prob. 26CAPCh. 8 - Prob. 27PRCh. 8 - Prob. 28PRCh. 8 - Prob. 29PRCh. 8 - Prob. 30PRCh. 8 - Prob. 31PRCh. 8 - Prob. 32PR
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