# Question

Refer to Table 19.1.

a. Verify the regression coefficients in equation (19.12).

b. Perform the analysis for t = 1, verifying that exercise is optimal on paths 4, 6, 7, and 8, and not on path 1.

a. Verify the regression coefficients in equation (19.12).

b. Perform the analysis for t = 1, verifying that exercise is optimal on paths 4, 6, 7, and 8, and not on path 1.

## Answer to relevant Questions

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. Let r = 0.08, S = $100, δ = 0, and σ = 0.30. Using the risk-neutral distribution, simulate 1/S1. What is E(1/S1)? What is the forward price for a contract paying 1/S1? Suppose that the processes for S1 and S2 are given by these two equations: dS1= α1S1dt + σ1S1dZ1 dS2 = α2S2dt + σ2S2dZ2 dQ = αQQdt + Q_ η1dZ1+ η2dZ2 Show that, to avoid arbitrage, Suppose that S follows equation (20.36) and Q follows equation (20.37). Use Itˆo’s Lemma to find the process followed by ln(SQ). An agricultural producer wishes to insure the value of a crop. Let Q represent the quantity of production in bushels and S the price of a bushel. The insurance payoff is therefore Q(T ) × V [S(T ), T ], where V is the price ...Post your question

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