DIFFERENTIAL EQUATIONS-NEXTGEN WILEYPLUS
DIFFERENTIAL EQUATIONS-NEXTGEN WILEYPLUS
3rd Edition
ISBN: 9781119764564
Author: BRANNAN
Publisher: WILEY
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Chapter 8.P2, Problem 3P

Use the differential equation (4) to generate an ensemble of stock prices S N ( k ) = S ( k ) ( N Δ t ) , k = 1 , , M (where T = N Δ t ) and then use formula (6) to compare a Monte Carlo estimate of the value of a five-month call option ( T = 5 12 years ) for the following parameter values: r = 0.06 , σ = 0.2 , and K = $ 50 . Find estimates corresponding to current stock prices of S ( 0 ) = s = $ 45 , $ 50 , and $ 55 . Use N = 200 time steps for each trajectory and M 10 , 000 sample trajectories for each Monte Carlo estimate. Check the accuracy of your results by comparing the Monte Carlo approximation with the value computed from the exact Black-Scholes formula

C ( s ) = s 2 erfc ( d 1 2 ) K 2 e r T erfc ( d 2 2 ) , (ii)

where

d 1 = 1 σ T [ ln ( s k ) + ( r + σ 2 2 ) T ] , d 2 = d 1 σ T

And erfc ( x ) is the complementary error function,

erfc ( x ) = 2 π x e t 2 d t .

The difference equation (4) is given below:

S n + 1 ( k ) = S n ( k ) + r S n ( k ) Δ t + σ S n ( k ) n + 1 k Δ t , S 0 k = s

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Chapter 8 Solutions

DIFFERENTIAL EQUATIONS-NEXTGEN WILEYPLUS

Ch. 8.1 - In each of Problems 11 through 14 , use Eular’s...Ch. 8.1 - In each of Problems 11 through 14 , use Eular’s...Ch. 8.1 - In each of Problems 11 through 14 , use Eular’s...Ch. 8.1 - In each of Problems 11 through 14 , use Eular’s...Ch. 8.1 - Consider the initial value problem...Ch. 8.1 - Consider the initial value problem Use Euler’s...Ch. 8.1 - Consider the initial value problem...Ch. 8.1 - Consider the initial value problem Where is a...Ch. 8.1 - Consider the initial value problem y=y2t2,y(0)=,...Ch. 8.2 - In each of Problem 1 through 6, find approximate...Ch. 8.2 - In each of Problem 1 through 6, find approximate...Ch. 8.2 - In each of Problem 1 through 6, find approximate...Ch. 8.2 - In each of Problem 1 through 6, find approximate...Ch. 8.2 - In each of Problem 1 through 6, find approximate...Ch. 8.2 - In each of Problem 1 through 6, find approximate...Ch. 8.2 - In each of Problem 7 through 12, find approximate...Ch. 8.2 - In each of Problem 7 through 12, find approximate...Ch. 8.2 - In each of Problem 7 through 12, find approximate...Ch. 8.2 - In each of Problem 7 through 12, find approximate...Ch. 8.2 - In each of Problem 7 through 12, find approximate...Ch. 8.2 - In each of Problem 7 through 12, find approximate...Ch. 8.2 - Complete the calculations leading to the entries...Ch. 8.2 - Using three terms in the Taylor series given in...Ch. 8.2 - In each of Problems 15 and 16, estimate the local...Ch. 8.2 - In each of Problems 15 and 16, estimate the local...Ch. 8.2 - In each of Problems 17 and 20, obtain a formula...Ch. 8.2 - In each of Problems 17 and 20, obtain a formula...Ch. 8.2 - In each of Problems 17 and 20, obtain a formula...Ch. 8.2 - In each of Problems 17 and 20, obtain a formula...Ch. 8.2 - Consider the initial value problem y=cos5t,y(0)=1....Ch. 8.2 - Using a step size h=0.05 and the Euler method,...Ch. 8.2 - The following problem illustrates a danger that...Ch. 8.2 - The distributive law a(bc)=abac does not hold, in...Ch. 8.2 - In this section we stated that the global...Ch. 8.3 - In each of Problem 1 through 6, find approximate...Ch. 8.3 - In each of Problem 1 through 6, find approximate...Ch. 8.3 - In each of Problem 1 through 6, find approximate...Ch. 8.3 - In each of Problem 1 through 6, find approximate...Ch. 8.3 - In each of Problem 1 through 6, find approximate...Ch. 8.3 - In each of Problem 1 through 6, find approximate...Ch. 8.3 - In each of Problem 7 through 12, find approximate...Ch. 8.3 - In each of Problem 7 through 12, find approximate...Ch. 8.3 - In each of Problem 7 through 12, find approximate...Ch. 8.3 - In each of Problem 7 through 12, find approximate...Ch. 8.3 - In each of Problem 7 through 12, find approximate...Ch. 8.3 - In each of Problem 7 through 12, find approximate...Ch. 8.3 - Complete the calculation leading to the entries in...Ch. 8.3 - Confirm the results in Table 8.3.2 by executing...Ch. 8.3 - Consider the initial value problem y=t2+y2,y(0)=1....Ch. 8.3 - Consider the initial value problem Draw a...Ch. 8.3 - In this problem, we establish that the local...Ch. 8.3 - Consider the improved Euler method for solving the...Ch. 8.3 - In each of Problems 19 and 20, use the actual...Ch. 8.3 - In each of Problems 19 and 20, use the actual...Ch. 8.3 - In each of Problems 21 through 24, carry out one...Ch. 8.3 - In each of Problems 21 through 24, carry out one...Ch. 8.3 - In each of Problems 21 through 24, carry out one...Ch. 8.3 - In each of Problems 21 through 24, carry out one...Ch. 8.4 - In each of Problems 1 through 6, determine...Ch. 8.4 - In each of Problems 1 through 6, determine...Ch. 8.4 - In each of Problems 1 through 6, determine...Ch. 8.4 - In each of Problems 1 through 6, determine...Ch. 8.4 - In each of Problems 1 through 6, determine...Ch. 8.4 - In each of Problems 1 through 6, determine...Ch. 8.4 - Consider the example problemwith the initial...Ch. 8.4 - Consider the initial value problem...Ch. 8.P1 - Assume that the shape of the dispensers are...Ch. 8.P1 - After viewing the results of her computer...Ch. 8.P2 - Show that Euler’s method applied to the...Ch. 8.P2 - Simulate five sample trajectories of Eq. (1) for...Ch. 8.P2 - Use the differential equation (4) to generate an...Ch. 8.P2 - Variance Reduction by Antithetic Variates. A...
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