Statistics for Engineers and Scientists
4th Edition
ISBN: 9780073401331
Author: William Navidi Prof.
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 8.1, Problem 1E
In an experiment to determine the factors affecting tensile strength in steel plates, the tensile strength (in kg/mm2), the manganese content (in parts per thousand), and the thickness (in mm) were measured for a sample of 20 plates. The following MINITAB output presents the results of fitting the model Tensile strength = β0 + β1 Manganese + β2 Thickness.
- a. Predict the strength for a specimen that is 10 mm thick and contains 8.2 ppt manganese.
- b. If two specimens have the same thickness, and one contains 10 ppt more manganese, by how much would you predict their strengths to differ?
- c. If two specimens have the same proportion of manganese, and one is 5 mm thicker than the other, by how much would you predict their strengths to differ?
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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?
We consider a 4-dimensional stock price model given (under P) by
dẴ₁ = µ· Xt dt + йt · ΣdŴt
where (W) is an n-dimensional Brownian motion,
π = (0.02, 0.01, -0.02, 0.05),
0.2
0
0
0
0.3
0.4
0
0
Σ=
-0.1
-4a За
0
0.2
0.4 -0.1 0.2)
and a E R. We assume that ☑0 = (1, 1, 1, 1) and that the interest rate on the market is r = 0.02.
(a) Give a condition on a that would make stock #3 be the one with largest volatility.
(b) Find the diversification coefficient for this portfolio as a function of a.
(c) Determine the maximum diversification coefficient d that you could reach by varying the
value of a?
2
Chapter 8 Solutions
Statistics for Engineers and Scientists
Ch. 8.1 - In an experiment to determine the factors...Ch. 8.1 - Prob. 2ECh. 8.1 - Prob. 3ECh. 8.1 - The article Application of Analysis of Variance to...Ch. 8.1 - Prob. 5ECh. 8.1 - Prob. 6ECh. 8.1 - Prob. 7ECh. 8.1 - Refer to Exercise 7. a. Find a 95% confidence...Ch. 8.1 - In a study of the lung function of children, the...Ch. 8.1 - Prob. 10E
Ch. 8.1 - Prob. 11ECh. 8.1 - The following MINITAB output is for a multiple...Ch. 8.1 - Prob. 13ECh. 8.1 - Prob. 14ECh. 8.1 - Prob. 15ECh. 8.1 - The following data were collected in an experiment...Ch. 8.1 - The November 24, 2001, issue of The Economist...Ch. 8.1 - The article Multiple Linear Regression for Lake...Ch. 8.1 - Prob. 19ECh. 8.2 - In an experiment to determine factors related to...Ch. 8.2 - In a laboratory test of a new engine design, the...Ch. 8.2 - In a laboratory test of a new engine design, the...Ch. 8.2 - The article Influence of Freezing Temperature on...Ch. 8.2 - The article Influence of Freezing Temperature on...Ch. 8.2 - The article Influence of Freezing Temperature on...Ch. 8.3 - True or false: a. For any set of data, there is...Ch. 8.3 - The article Experimental Design Approach for the...Ch. 8.3 - Prob. 3ECh. 8.3 - An engineer measures a dependent variable y and...Ch. 8.3 - Prob. 5ECh. 8.3 - The following MINITAB output is for a best subsets...Ch. 8.3 - Prob. 7ECh. 8.3 - Prob. 8ECh. 8.3 - (Continues Exercise 7 in Section 8.1.) To try to...Ch. 8.3 - Prob. 10ECh. 8.3 - Prob. 11ECh. 8.3 - Prob. 12ECh. 8.3 - The article Ultimate Load Analysis of Plate...Ch. 8.3 - Prob. 14ECh. 8.3 - Prob. 15ECh. 8.3 - Prob. 16ECh. 8.3 - The article Modeling Resilient Modulus and...Ch. 8.3 - The article Models for Assessing Hoisting Times of...Ch. 8 - The article Advances in Oxygen Equivalence...Ch. 8 - Prob. 2SECh. 8 - Prob. 3SECh. 8 - Prob. 4SECh. 8 - In a simulation of 30 mobile computer networks,...Ch. 8 - The data in Table SE6 (page 649) consist of yield...Ch. 8 - Prob. 7SECh. 8 - Prob. 8SECh. 8 - Refer to Exercise 2 in Section 8.2. a. Using each...Ch. 8 - Prob. 10SECh. 8 - The data presented in the following table give the...Ch. 8 - The article Enthalpies and Entropies of Transfer...Ch. 8 - Prob. 13SECh. 8 - Prob. 14SECh. 8 - The article Measurements of the Thermal...Ch. 8 - The article Electrical Impedance Variation with...Ch. 8 - The article Groundwater Electromagnetic Imaging in...Ch. 8 - Prob. 18SECh. 8 - Prob. 19SECh. 8 - Prob. 20SECh. 8 - Prob. 21SECh. 8 - Prob. 22SECh. 8 - The article Estimating Resource Requirements at...Ch. 8 - Prob. 24SE
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