MATLAB: AN INTRODUCTION WITH APPLICATIO
6th Edition
ISBN: 9781119626596
Author: GILAT
Publisher: WILEY
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Chapter 9, Problem 6P
The position s of the slider as a
Given
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Question 1: Determine and interpret the correlation coefficient between the two variables. In your interpretation, discuss the direction of the relationship (positive, negative, or zero relationship). Also discuss the strength of the relationship.
Value of correlation coefficient:
Direction of the relationship (positive, negative, or zero relationship):
Strength of the relationship (strong/moderate/weak):
Question 2: Estimate the relationship between screen size and price using a simple linear regression model and interpret the estimated coefficients. In your interpretation, tell the dollar amount by which price will change for each unit of increase in screen size. (The answer for the…
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 9 Solutions
MATLAB: AN INTRODUCTION WITH APPLICATIO
Ch. 9 - Prob. 1PCh. 9 - Determine the solution of the equation 3...Ch. 9 - Determine the three roots of the equation...Ch. 9 - Determine the positive roots of the equation...Ch. 9 - The area Aof a circle segment is given by:...Ch. 9 - The position s of the slider as a function of in...Ch. 9 - The van der Waals equation gives a relationship...Ch. 9 - An estimate of the minimum velocity required for a...Ch. 9 - A series RLC circuit with an AC voltage source is...Ch. 9 - For fluid flow in a pipe, the Colebrook-White (or...
Ch. 9 - Using MATLAB’s built-in function fminbnd,...Ch. 9 - A flat rectangular sheet of metal that is 70 in....Ch. 9 - Using MATLAB’s built-in function fminbnd,...Ch. 9 - A prismatic box with equilateral triangular base...Ch. 9 - An RLC circuit with an alternating voltage source...Ch. 9 - A 108-in.-long beam AB is attached to the wall...Ch. 9 - Use MATLAB to calcute the following integrals: (a)...Ch. 9 - Use MATLAB to calculate the following integrals:...Ch. 9 - The speed of a race car during the first 7 s of a...Ch. 9 - A rubber band is stretched by fixing one end...Ch. 9 - Use numerical integration to approximate the size...Ch. 9 - The electric wire that connects the house to the...Ch. 9 - The flow rate Q (volume of fluid per second) in a...Ch. 9 - Prob. 24PCh. 9 - The variation of gravitational acceleration g with...Ch. 9 - An approximate map of Lake Erie is shown in the...Ch. 9 - To estimate the surface area and volume of a...Ch. 9 - Prob. 28PCh. 9 - The orbit of Mercury is elliptical in shape, with...Ch. 9 - Prob. 30PCh. 9 - Use a MATLAB built-in function to numerically...Ch. 9 - Use a MATLAB built-in function to numerically...Ch. 9 - Prob. 33PCh. 9 - Use a MATLAB built-in funtion to numerically...Ch. 9 - The growth of a fish is often modeled by the von...Ch. 9 - A water tank shaped as a cone (R = 2 m, H = 4 m)...Ch. 9 - The sudden outbreak of an insect population can be...Ch. 9 - An airplane uses a parachute and other means of...Ch. 9 - The population growth of species with limited...Ch. 9 - An RL circuit includes a voltage source vs, a...Ch. 9 - Growth of many organisms can be modeled with the...Ch. 9 - The velocity, v, of an object that falls freely...
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- 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?arrow_forwardWe 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? 2arrow_forwardQuestion 1. Your manager asks you to explain why the Black-Scholes model may be inappro- priate for pricing options in practice. Give one reason that would substantiate this claim? Question 2. We consider stock #1 and stock #2 in the model of Problem 2. Your manager asks you to pick only one of them to invest in based on the model provided. Which one do you choose and why ? Question 3. Let (St) to be an asset modeled by the Black-Scholes SDE. Let Ft be the price at time t of a European put with maturity T and strike price K. Then, the discounted option price process (ert Ft) t20 is a martingale. True or False? (Explain your answer.) Question 4. You are considering pricing an American put option using a Black-Scholes model for the underlying stock. An explicit formula for the price doesn't exist. In just a few words (no more than 2 sentences), explain how you would proceed to price it. Question 5. We model a short rate with a Ho-Lee model drt = ln(1+t) dt +2dWt. Then the interest rate…arrow_forward
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- The PDF of an amplitude X of a Gaussian signal x(t) is given by:arrow_forwardThe PDF of a random variable X is given by the equation in the picture.arrow_forwardFor a binary asymmetric channel with Py|X(0|1) = 0.1 and Py|X(1|0) = 0.2; PX(0) = 0.4 isthe probability of a bit of “0” being transmitted. X is the transmitted digit, and Y is the received digit.a. Find the values of Py(0) and Py(1).b. What is the probability that only 0s will be received for a sequence of 10 digits transmitted?c. What is the probability that 8 1s and 2 0s will be received for the same sequence of 10 digits?d. What is the probability that at least 5 0s will be received for the same sequence of 10 digits?arrow_forward
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