# Question: Suppose you observe the prices 5 4 5 6 5

Suppose you observe the prices {5, 4, 5, 6, 5}. What are the arithmetic and geometric averages? Nowyou observe {3, 4, 5, 6, 7}. What are the two averages? What happens to the difference between the two measures of the average as the standard deviation of the observations increases?

## Relevant Questions

A chooser option (also known as an as-you-like-it option) becomes a put or call at the discretion of the owner. For example, consider a chooser on the S&R index for which both the call, with value C(St , K, T − t), and the ...Repeat Problem 14.3, except construct a three-period binomial tree. Assume that Asian options are based on averaging the prices every 4 months. a. What are the possible geometric and arithmetic averages after 1 year? b. What ...Compute λ if the dividend on the CD is 0, the initial price is $1300, and the payoff is $1200 + λ × max(0, S5.5 − 1300). Using Figure 3.16 on page 85 as the basis for a discussion, explain under what circumstances an investor might prefer a PEPS to the stock or vice versa. Assume that the volatility of the S&P index is 30% and consider a bond with the payoff S2 + λ × [max(0, S2 − S0) − max(0, S2 − K)]. a. If λ = 1 and K = $1500, what is the price of the bond? b. Suppose K = $1500. For ...Post your question