Questions from Business Statistics

Q: Verify that the results in Section 26.2 for the value

Verify that the results in Section 26.2 for the value of a derivative that pays Q when S = H are consistent with those in Section 15.6.

Q: Suppose that c1 and p1 are the prices of a European average

Suppose that c1 and p1 are the prices of a European average price call and a European average price put with strike price K and maturity T, c2 and p2 are the prices of a European average strike call a...

Q: The text derives a decomposition of a particular type of chooser option

The text derives a decomposition of a particular type of chooser option into a call maturing at time T2 and a put maturing at time T1. Derive an alternative decomposition into a call maturing at time...

Q: Estimate parameters for EWMA and GARCH(1, 1) from

Estimate parameters for EWMA and GARCH(1, 1) from data on the euro–USD exchange rate between July 27, 2005, and July 27, 2010. This data can be found on the author’s website: www-2.rotman.utoronto.ca/...

Q: Section 26.9 gives two formulas for a down-and

Section 26.9 gives two formulas for a down-and-out call. The first applies to the situation where the barrier, H, is less than or equal to the strike price, K. The second applies to the situation wher...

Q: Explain why a down-and-out put is worth zero

Explain why a down-and-out put is worth zero when the barrier is greater than the strike price.

Q: Confirm that the CEV model formulas satisfy put–call parity.

Confirm that the CEV model formulas satisfy put–call parity.

Q: Suppose that the volatility of an asset will be 20% from

Suppose that the volatility of an asset will be 20% from month 0 to month 6, 22% from month 6 to month 12, and 24% from month 12 to month 24. What volatility should be used in Black–Scholes–Merton to...

Q: Write down the equations for simulating the path followed by the asset

Write down the equations for simulating the path followed by the asset price in the stochastic volatility model in equations (27.2) and (27.3).

Q: ‘‘The IVF model does not necessarily get the evolution of the

‘‘The IVF model does not necessarily get the evolution of the volatility surface correct.’’ Explain this statement.