Suppose x1∼ N(1, 5) and x2 ∼ N(−2, 2). The covariance between x1 and x2 is 1.3. What is the distribution of x1+ x2? What is the distribution of x1− x2?
Answer to relevant QuestionsSuppose x1∼ N(2, 0.5) and x2 ∼ N(8, 14). The correlation between x1 and x2 is −0.3. What is the distribution of x1+ x2? What is the distribution of x1− x2? What is E(St |St > $105) for t = 1? How does this expectation change when you change t , σ, and r? 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. 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 ...Use Itˆo’s Lemma to evaluate dS2. For the following four problems, use Itˆo’s Lemma to determine the process followed by the specified equation, assuming that S(t) follows (a) Arithmetic Brownian motion, equation ...
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