Questions from Business Statistics

Q: Stock A and stock B both follow geometric Brownian motion. Changes

Stock A and stock B both follow geometric Brownian motion. Changes in any short interval of time are uncorrelated with each other. Does the value of a portfolio consisting of one of stock A and one of...

Q: The process for the stock price in equation (14.8

The process for the stock price in equation (14.8) is Where µ and σ are constant. Explain carefully the difference between this model and each of the following: Why is the mod...

Q: It has been suggested that the short-term interest rate r

It has been suggested that the short-term interest rate r follows the stochastic process
where a, b, c are positive constants and dz is a Wiener process. Describe the nature of this process.

Q: A portfolio manager announces that the average of the returns realized in

A portfolio manager announces that the average of the returns realized in each year of the last 10 years is 20% per annum. In what respect is this statement misleading?

Q: Assume that a non-dividend-paying stock has an expected

Assume that a non-dividend-paying stock has an expected return of and a volatility of . An innovative financial institution has just announced that it will trade a security that pays off a dollar am...

Q: A call option on a non-dividend-paying stock has

A call option on a non-dividend-paying stock has a market price of $212. The stock price is $15, the exercise price is $13, the time to maturity is 3 months, and the risk-free interest rate is 5% per...

Q: With the notation used in this chapter: (a)

With the notation used in this chapter: (a) What is N (x)? (b) Show that , where S is the stock price at time t and (c) (d) where c is the price of a call option on a non-dividend-paying stock. (...

Q: A stock price is currently $50 and the risk-free

A stock price is currently $50 and the risk-free interest rate is 5%. Use the DerivaGem software to translate the following table of European call options on the stock into a table of implied volatili...

Q: Explain carefully why Black’s approach to evaluating an American call option on

Explain carefully why Black’s approach to evaluating an American call option on a dividend-paying stock may give an approximate answer even when only one dividend is anticipated. Does the answer given...

Q: A stock price is currently $25. It is known that

A stock price is currently $25. It is known that at the end of 2 months it will be either $23 or $27. The risk-free interest rate is 10% per annum with continuous compounding. Suppose ST is the stock...