Question: For stocks 1 and 2 S1 40 S2
For stocks 1 and 2, S1 = $40, S2 = $100, and the return correlation is 0.45. Let r = 0.08, σ1= 0.30, σ2 = 0.50, and δ1= δ2 = 0. Generate 1000 1-month prices for the two stocks. For each stock, compute the mean and standard deviation of the continuously compounded return. Also compute the return correlation.
Relevant QuestionsAssume S0 = $100, r = 0.05, σ = 0.25, δ = 0, and T = 1. Use Monte Carlo valuation to compute the price of a claim that pays $1 if ST > $100, and 0 otherwise. (This is called a cash-or-nothing call and will be further ...Refer to Figure 19.2. a. Verify that the price of a European put option is $0.0564. b. Verify that the price of an American put option is $0.1144. Be sure to allow for the possibility of exercise at time 0. Suppose that ln(S) and ln(Q) have correlation ρ =−0.3 and that S0 = $100, Q0 =$100, r = 0.06, σS = 0.4, and σQ = 0.2. Neither stock pays dividends. Use Monte Carlo to find the price today of claims that pay the ...Assume that one stock follows the process dS/S = αdt + σdZ (20.44) Another stock follows the process dQ/Q = αQdt + σdZ + dq1+ dq2 (20.45) a. If there were no jump terms (i.e., λ1 = λ2 = 0), what would be the relation ...Verify that equation (21.12) satisfies the Black-Scholes equation. What is the boundary condition for which this is a solution?
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