Questions from Business Statistics

Q: When do the boundary conditions for
and S→∞ affect the

When do the boundary conditions for
and S→∞ affect the estimates of derivative prices in the explicit finite difference method?

Q: How would you use the antithetic variable method to improve the estimate

How would you use the antithetic variable method to improve the estimate of the European option in Business Snapshot 21.2 and Table 21.2?

Q: Provide formulas that can be used for obtaining three random samples from

Provide formulas that can be used for obtaining three random samples from standard normal distributions when the correlation between sample i and sample j is
.

Q: Explain how the control variate technique is implemented when a tree is

Explain how the control variate technique is implemented when a tree is used to value American options.

Q: Calculate the price of a 9-month American call option on

Calculate the price of a 9-month American call option on corn futures when the current futures price is 198 cents, the strike price is 200 cents, the risk-free interest rate is 8% per annum, and the v...

Q: Consider an option that pays off the amount by which the final

Consider an option that pays off the amount by which the final stock price exceeds the average stock price achieved during the life of the option. Can this be valued using the binomial tree approach?...

Q: Suppose that you enter into a short futures contract to sell July

Suppose that you enter into a short futures contract to sell July silver for $17.20 per ounce. The size of the contract is 5,000 ounces. The initial margin is $4,000, and the maintenance margin is $3,...

Q: Explain carefully the arbitrage opportunities in Problem 11.16 if the

Explain carefully the arbitrage opportunities in Problem 11.16 if the American put price is greater than the calculated upper bound. Data from Problem 11.16: The price of an American call on a non-di...

Q: ‘‘For a dividend-paying stock, the tree for the

‘‘For a dividend-paying stock, the tree for the stock price does not recombine; but the tree for the stock price less the present value of future dividends does recombine.’’ Explain this statement.

Q: Show that the probabilities in a Cox, Ross, and Rubinstein

Show that the probabilities in a Cox, Ross, and Rubinstein binomial tree are negative when the condition in footnote 8 holds.