A client of a large investment bank is interested in purchasing a European call option for a certain stock that provides him with the right to purchase the stock at a fixed price 12 weeks from today. The client then would exercise this option in 12 weeks only if this fixed price is less than the market price of the stock at that time. The bank now needs to determine what price should be charged for the call option. This price should be the mean value of the option in 12 weeks. Based on a random walk model of how a stock price evolves from week to week, simulation is to be used to estimate this mean value. To start, the various elementsof a simulation model need to be carefully formulated.
Answer to relevant QuestionsUse the mixed congruential method to generate the following sequences of random numbers. (a) A sequence of 10 one-digit random integer numbers such that xn + 1 ≡ (xn + 3) (modulo 10) and x0 = 2 (b) A sequence of eight ...Consider the M/M/1 queueing theory model that was discussed in Sec. 17.6 and Example 2, Sec. 20.1. Suppose that the mean arrival rate is 5 per hour, the mean service rate is 10 per hour, and you are required to estimate the ...Refer to the spreadsheet file named “Everglade Problem 21-10” contained in the Excel files for this chapter on the book’ website. This file contains a formulation of the Everglade problem considered in this chapter. ...In contrast to the spreadsheet model for the Wyndor Glass Co. product-mix problem shown in Fig. 21.6, the spreadsheet given next is an example of a poorly formulated spreadsheet model for this same problem. Identify each of ...Sharon Lowe, vice president for marketing for the Electronic Toys Company, is about to begin a project to design an advertising campaign for a new line of toys. She wants the project completed within 57 days in time to ...
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