Elementary Statistics 2nd Edition
2nd Edition
ISBN: 9781259724275
Author: William Navidi, Barry Monk
Publisher: McGraw-Hill Education
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Chapter 9.2, Problem 31E
To determine
To explain whether the given statement is True or False.
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Problem 3. Pricing a multi-stock option the Margrabe formula
The purpose of this problem is to price a swap option in a 2-stock model, similarly as
what we did in the example in the lectures. We consider a two-dimensional Brownian
motion given by W₁ = (W(¹), W(2)) on a probability space (Q, F,P). Two stock prices
are modeled by the following equations:
dX
=
dY₁ =
X₁ (rdt+
rdt+0₁dW!)
(²)),
Y₁ (rdt+dW+0zdW!"),
with Xo
xo and Yo =yo. This corresponds to the multi-stock model studied in class,
but with notation (X+, Y₁) instead of (S(1), S(2)). Given the model above, the measure
P is already the risk-neutral measure (Both stocks have rate of return r). We write
σ = 0₁+0%. We consider a swap option, which gives you the right, at time T, to
exchange one share of X for one share of Y. That is, the option has payoff
F=(Yr-XT).
(a) We first assume that r = 0 (for questions (a)-(f)). Write an explicit expression for
the process Xt.
Reminder before proceeding to question (b): Girsanov's theorem…
Problem 1. Multi-stock model
We consider a 2-stock model similar to the one studied in class. Namely, we consider
=
S(1)
S(2)
=
S(¹) exp (σ1B(1) + (M1 - 0/1 )
S(²) exp (02B(2) + (H₂-
M2
where (B(¹) ) +20 and (B(2) ) +≥o are two Brownian motions, with
t≥0
Cov (B(¹), B(2)) = p min{t, s}.
"
The purpose of this problem is to prove that there indeed exists a 2-dimensional Brownian
motion (W+)+20 (W(1), W(2))+20 such that
=
S(1)
S(2)
=
=
S(¹) exp (011W(¹) + (μ₁ - 01/1) t)
롱)
S(²) exp (021W (1) + 022W(2) + (112 - 03/01/12) t).
where σ11, 21, 22 are constants to be determined (as functions of σ1, σ2, p).
Hint: The constants will follow the formulas developed in the lectures.
(a) To show existence of (Ŵ+), first write the expression for both W. (¹) and W (2)
functions of (B(1), B(²)).
as
(b) Using the formulas obtained in (a), show that the process (WA) is actually a 2-
dimensional standard Brownian motion (i.e. show that each component is normal,
with mean 0, variance t, and that their…
The scores of 8 students on the midterm exam and final exam were as follows.
Student
Midterm
Final
Anderson
98
89
Bailey
88
74
Cruz
87
97
DeSana
85
79
Erickson
85
94
Francis
83
71
Gray
74
98
Harris
70
91
Find the value of the (Spearman's) rank correlation coefficient test statistic that would be used to test the claim of no correlation between midterm score and final exam score. Round your answer to 3 places after the decimal point, if necessary.
Test statistic: rs =
Chapter 9 Solutions
Elementary Statistics 2nd Edition
Ch. 9.1 - In Exercises 7 and 8, fill in each blank with the...Ch. 9.1 - In Exercises 7 and 8, fill in each blank with the...Ch. 9.1 - In Exercises 9-12, determine whether the statement...Ch. 9.1 - In Exercises 9-12, determine whether the statement...Ch. 9.1 - In Exercises 9-12, determine whether the statement...Ch. 9.1 - In Exercises 9-12, determine whether the statement...Ch. 9.1 - In Exercises 13-16, determine whether the...Ch. 9.1 - In Exercises 13-16, determine whether the...Ch. 9.1 - In Exercises 13-16, determine whether the...Ch. 9.1 - In Exercises 13-16, determine whether the...
Ch. 9.1 - In Exercises 17–20, determine whether the...Ch. 9.1 - In Exercises 17-20, determine whether the outcome...Ch. 9.1 - In Exercises 17–20, determine whether the...Ch. 9.1 - In Exercises 17–20, determine whether the...Ch. 9.1 - Fertilizer: A new type of fertilizer is being...Ch. 9.1 - Big fish: A sample of loo flounder of a certain...Ch. 9.1 - Check, please: A restaurant owner claims that the...Ch. 9.1 - Coffee: The mean caffeine content per cup of...Ch. 9.1 - Big dogs: A veterinarian claims that the mean...Ch. 9.1 - Business trips A sales manager believes that the...Ch. 9.1 - Type I error: A company that manufactures steel...Ch. 9.1 - Type I error: Washers used in a certain...Ch. 9.1 - Scales: It is desired to check the calibration of...Ch. 9.1 - IQ: Scores on a certain IQ test are known to have...Ch. 9.2 - In Exercises 23–28, fill in each blank with the...Ch. 9.2 - In Exercises 23-28, fill in each blank with the...Ch. 9.2 - Prob. 25ECh. 9.2 - In Exercises 23-28, fill in each blank with the...Ch. 9.2 - Prob. 27ECh. 9.2 - Prob. 28ECh. 9.2 - In Exercises 29-34, determine whether the...Ch. 9.2 - In Exercises 29-34, determine whether the...Ch. 9.2 - Prob. 31ECh. 9.2 - Prob. 32ECh. 9.2 - Prob. 33ECh. 9.2 - Prob. 34ECh. 9.2 - A test is made of H0:=50 versus H1:50. A sample of...Ch. 9.2 - A test is made of H0:=14 versus H1:14. A sample of...Ch. 9.2 - A test is made of H0:=130 versus H1:130. A sample...Ch. 9.2 - A test is made of H0:=5 versus H1:5. A sample of...Ch. 9.2 - A test of the hypothesis H0:=65 versus H1:65 was...Ch. 9.2 - A test of the hypothesis H0:=150 versus H1:150 was...Ch. 9.2 - True or false: If P=0.02, then The result is...Ch. 9.2 - True or false: If P=0.08, then The result is...Ch. 9.2 - A test of H0:=17 versus H1:17 is performed using a...Ch. 9.2 - A test of H0:=50 versus H1:50 is performed using a...Ch. 9.2 - A test of H0:=0 versus H1:0 is performed using a...Ch. 9.2 - Prob. 46ECh. 9.2 - If H0 is rejected at the =0.05 level, which of the...Ch. 9.2 - Prob. 48ECh. 9.2 - If P=0.03, which of the following is the best...Ch. 9.2 - Prob. 50ECh. 9.2 - Prob. 51ECh. 9.2 - Are you smarter than a second grader? A random...Ch. 9.2 - Height and age: Are older men shorter than younger...Ch. 9.2 - Calibrating a scale: Making sure that the scales...Ch. 9.2 - Prob. 55ECh. 9.2 - Prob. 56ECh. 9.2 - Prob. 57ECh. 9.2 - Prob. 58ECh. 9.2 - What are you drinking? Environmental Protection...Ch. 9.2 - Prob. 60ECh. 9.2 - Interpret calculator display: The age in years was...Ch. 9.2 - Interpret calculator display: The number of...Ch. 9.2 - Prob. 63ECh. 9.2 - Prob. 64ECh. 9.2 - Prob. 65ECh. 9.2 - Statistical or practical significance: A new...Ch. 9.2 - Test scores: A math teacher has developed a new...Ch. 9.2 - Prob. 68ECh. 9.2 - Prob. 69ECh. 9.2 - Prob. 70ECh. 9.2 - Prob. 71ECh. 9.2 - Large samples and practical significance: A sample...Ch. 9.3 - In Exercises 7 and 8, fill in each blank with the...Ch. 9.3 - Prob. 8ECh. 9.3 - Prob. 9ECh. 9.3 - Prob. 10ECh. 9.3 - Find the P-value for the following values of the...Ch. 9.3 - Find the P-value for the following values of the...Ch. 9.3 - Find the critical value or values for the...Ch. 9.3 - Find the critical value or values for the...Ch. 9.3 - Is there a doctor in the house? The market...Ch. 9.3 - College tuition: The mean annual tuition and fees...Ch. 9.3 - Big babies: The National Health Statistics Reports...Ch. 9.3 - Good credit: The Fair Isaac Corporation (FICO)...Ch. 9.3 - Commuting to work: The American Community Survey...Ch. 9.3 - Watching TV: The General Social Survey asked a...Ch. 9.3 - Prob. 21ECh. 9.3 - How much is in that can? A machine that fills...Ch. 9.3 - Prob. 23ECh. 9.3 - Prob. 24ECh. 9.3 - Keep cool: Following are prices, in dollars, of a...Ch. 9.3 - Prob. 26ECh. 9.3 - Prob. 27ECh. 9.3 - Prob. 28ECh. 9.3 - Interpret calculator display: A sample of adults...Ch. 9.3 - Prob. 30ECh. 9.3 - Prob. 31ECh. 9.3 - Prob. 32ECh. 9.3 - Does this diet work? In a study of the...Ch. 9.3 - Prob. 34ECh. 9.3 - Prob. 35ECh. 9.3 - Prob. 36ECh. 9.3 - Larger or smaller P-value? In a study of sleeping...Ch. 9.3 - Larger or smaller P-value? Juan and Mary want to...Ch. 9.3 - Interpret a P-value: A real estate agent believes...Ch. 9.3 - Interpret a P-value: The manufacturer of a...Ch. 9.3 - Using z instead of t: When the sample size is...Ch. 9.4 - In Exercises 5 and 6, fill in each blank with the...Ch. 9.4 - In Exercises 5 and 6, fill in each blank with the...Ch. 9.4 - Prob. 7ECh. 9.4 - Prob. 8ECh. 9.4 - In a simple random sample of size 80, there were...Ch. 9.4 - Prob. 10ECh. 9.4 - In a simple random sample of size 75, there were...Ch. 9.4 - In a simple random sample of size 150, there were...Ch. 9.4 - Prob. 13ECh. 9.4 - Prob. 14ECh. 9.4 - Prob. 15ECh. 9.4 - Prob. 16ECh. 9.4 - Quit smoking: In a survey of 444 HIV-positive...Ch. 9.4 - Prob. 18ECh. 9.4 - Prob. 19ECh. 9.4 - Curing diabetes: Vertical banded gastroplasty is a...Ch. 9.4 - Tweet tweet: An article in Forbes magazine...Ch. 9.4 - Prob. 22ECh. 9.4 - Choosing a doctor: Which do patients value more...Ch. 9.4 - Prob. 24ECh. 9.4 - Interpret calculator display: In a recent poll,...Ch. 9.4 - Prob. 26ECh. 9.4 - Prob. 27ECh. 9.4 - Prob. 28ECh. 9.4 - Prob. 29ECh. 9.4 - Who will you vote for? A simple random sample of...Ch. 9.4 - Prob. 31ECh. 9.4 - Dont perform a test: Over the past 100 days, the...Ch. 9.4 - Exact test: When np010 or n(1p0)10, we cannot use...Ch. 9.5 - In Exercises 5 and 6, fill in each blank with the...Ch. 9.5 - Prob. 6ECh. 9.5 - Prob. 7ECh. 9.5 - Prob. 8ECh. 9.5 - Prob. 9ECh. 9.5 - Prob. 10ECh. 9.5 - Prob. 11ECh. 9.5 - Prob. 12ECh. 9.5 - A random sample of size 25 from a normal...Ch. 9.5 - Prob. 14ECh. 9.5 - Babies: A sample of 25 one-year-old girls had a...Ch. 9.5 - Watching TV: The General Social Survey asked a...Ch. 9.5 - IQ scores: Scores on an IQ test are normally...Ch. 9.5 - SAT scores: Scores on the math SAT are normally...Ch. 9.5 - How much is in that can? A machine that fills...Ch. 9.5 - Prob. 20ECh. 9.5 - Prob. 21ECh. 9.5 - Prob. 22ECh. 9.5 - Prob. 23ECh. 9.6 - In Exercises 5–12, slate which type of parameter...Ch. 9.6 - Prob. 6ECh. 9.6 - Prob. 7ECh. 9.6 - Prob. 8ECh. 9.6 - Prob. 9ECh. 9.6 - Prob. 10ECh. 9.6 - Prob. 11ECh. 9.6 - Prob. 12ECh. 9.6 - Prob. 13ECh. 9.6 - Prob. 14ECh. 9.6 - Cookies: Following are the weights of 8 boxes of...Ch. 9.6 - Prob. 16ECh. 9.6 - Teacher salaries: A random sample of 50 public...Ch. 9.6 - Prob. 18ECh. 9.6 - Mercury pollution: Mercury is a toxic metal that...Ch. 9.6 - Prob. 20ECh. 9.7 - In Exercises 3-5, fill in each blank with the...Ch. 9.7 - Prob. 4ECh. 9.7 - Prob. 5ECh. 9.7 - In Exercises 6-8, determine whether the statement...Ch. 9.7 - Prob. 7ECh. 9.7 - Prob. 8ECh. 9.7 - Prob. 9ECh. 9.7 - A test has power 0.80 when 1=3.5. True or false:...Ch. 9.7 - Prob. 11ECh. 9.7 - Prob. 12ECh. 9.7 - Prob. 13ECh. 9.7 - Watch sour cholesterol: An article in the...Ch. 9.7 - Prob. 15ECh. 9.7 - Coffee beans: Refer to Exercise 12. A test of the...Ch. 9.7 - Prob. 17ECh. 9.7 - Prob. 18ECh. 9.7 - Prob. 19ECh. 9 - Fill in the blank: A test of the hypotheses H0:=65...Ch. 9 - A hypothesis test results in a P-value of 0.008....Ch. 9 - Prob. 3CQCh. 9 - Prob. 4CQCh. 9 - Prob. 5CQCh. 9 - Prob. 6CQCh. 9 - Prob. 7CQCh. 9 - In a random sample of 500 people who took their...Ch. 9 - Prob. 9CQCh. 9 - Prob. 10CQCh. 9 - Prob. 11CQCh. 9 - In a test of H0:=5 versus H1:5, the value of the...Ch. 9 - True or false: We can perform a test for a...Ch. 9 - Prob. 14CQCh. 9 - Prob. 15CQCh. 9 - Prob. 1RECh. 9 - Prob. 2RECh. 9 - Prob. 3RECh. 9 - Prob. 4RECh. 9 - Prob. 5RECh. 9 - Prob. 6RECh. 9 - Prob. 7RECh. 9 - Job satisfaction: The General Social Survey...Ch. 9 - Prob. 9RECh. 9 - Prob. 10RECh. 9 - Prob. 11RECh. 9 - Prob. 12RECh. 9 - Prob. 13RECh. 9 - Prob. 14RECh. 9 - Prob. 15RECh. 9 - Prob. 1WAICh. 9 - Prob. 2WAICh. 9 - Prob. 3WAICh. 9 - Prob. 4WAICh. 9 - Prob. 5WAICh. 9 - Prob. 6WAICh. 9 - Prob. 1CSCh. 9 - Prob. 2CSCh. 9 - Prob. 3CSCh. 9 - For some records marked with a * the record...Ch. 9 - Prob. 5CSCh. 9 - Prob. 6CSCh. 9 - Prob. 7CS
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