EBK ESSENTIAL STATISTICS FOR THE BEHAVI
2nd Edition
ISBN: 8220107093466
Author: PRIVITERA
Publisher: SAGE
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Chapter A, Problem A2A3.1RP
To determine
To find: The value of the given expression.
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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.)
Chapter A Solutions
EBK ESSENTIAL STATISTICS FOR THE BEHAVI
Ch. A - Prob. A1.1RPCh. A - Prob. A1.2RPCh. A - Prob. A1.3RPCh. A - Prob. A1.4RPCh. A - Prob. A1.5RPCh. A - Prob. A1.6RPCh. A - Prob. A1.7RPCh. A - Prob. A1.8RPCh. A - Prob. A1.9RPCh. A - Prob. A1.10RP
Ch. A - Prob. A1.11RPCh. A - Prob. A1.12RPCh. A - Prob. A1.13RPCh. A - Prob. A1.14RPCh. A - Prob. A1.15RPCh. A - Prob. A1.16RPCh. A - Prob. A2A3.1RPCh. A - Prob. A2A3.2RPCh. A - Prob. A2A3.3RPCh. A - Prob. A2A3.4RPCh. A - Prob. A2A3.5RPCh. A - Prob. A2A3.6RPCh. A - Prob. A2A3.7RPCh. A - Prob. A2A3.8RPCh. A - Prob. A2A3.9RPCh. A - Prob. A2A3.10RPCh. A - Prob. A4A5.1RPCh. A - Prob. A4A5.2RPCh. A - Prob. A4A5.3RPCh. A - Prob. A4A5.4RPCh. A - Prob. A4A5.5RPCh. A - Prob. A4A5.6RPCh. A - Prob. A4A5.7RPCh. A - Prob. A4A5.8RPCh. A - Prob. A4A5.9RPCh. A - Prob. A4A5.10RPCh. A - Prob. A4A5.11RPCh. A - Prob. A4A5.12RPCh. A - Prob. A4A5.13RPCh. A - Prob. A4A5.14RPCh. A - Prob. A4A5.15RPCh. A - Prob. A4A5.16RPCh. A - Prob. A4A5.17RPCh. A - Prob. A4A5.18RPCh. A - Prob. A4A5.19RPCh. A - Prob. A4A5.20RPCh. A - Prob. A6A7.1RPCh. A - Prob. A6A7.2RPCh. A - Prob. A6A7.3RPCh. A - Prob. A6A7.4RPCh. A - Prob. A6A7.5RPCh. A - Prob. A6A7.6RPCh. A - Prob. A6A7.7RPCh. A - Prob. A6A7.8RPCh. A - Prob. A6A7.9RPCh. A - Prob. A6A7.10RPCh. A - Prob. A6A7.11RPCh. A - Prob. A6A7.12RPCh. A - Prob. A6A7.13RPCh. A - Prob. A6A7.14RPCh. A - Prob. A6A7.15RPCh. A - Prob. A6A7.16RPCh. A - Prob. A6A7.17RPCh. A - Prob. A6A7.18RPCh. A - Prob. A6A7.19RPCh. A - Prob. A6A7.20RPCh. A - Prob. A6A7.21RPCh. A - Prob. A6A7.22RPCh. A - Prob. A6A7.23RPCh. A - Prob. A6A7.24RPCh. A - Prob. A6A7.25RPCh. A - Prob. A6A7.26RPCh. A - Prob. A8A9.1RPCh. A - Prob. A8A9.2RPCh. A - Prob. A8A9.3RPCh. A - Prob. A8A9.4RPCh. A - Prob. A8A9.5RPCh. A - Prob. A8A9.6RPCh. A - Prob. A8A9.7RPCh. A - Prob. A8A9.8RPCh. A - Prob. A8A9.9RPCh. A - Prob. A8A9.10RPCh. A - Prob. A8A9.11RPCh. A - Prob. A8A9.12RPCh. A - Prob. A8A9.13RPCh. A - Prob. A8A9.14RPCh. A - Prob. A10A11.1RPCh. A - Prob. A10A11.2RPCh. A - Prob. A10A11.3RPCh. A - Prob. A10A11.4RPCh. A - Prob. A10A11.5RPCh. A - Prob. A10A11.6RPCh. A - Prob. A10A11.7RPCh. A - Prob. A10A11.8RPCh. A - Prob. A10A11.9RPCh. A - Prob. A10A11.10RPCh. A - Prob. A10A11.11RPCh. A - Prob. A10A11.12RPCh. A - Prob. A10A11.13RPCh. A - Prob. A10A11.14RPCh. A - Prob. A10A11.15RPCh. A - Prob. A10A11.16RP
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