What is E(St |St > $105) for t = 1? How does this expectation change when you change t , σ, and r?
Answer to relevant QuestionsLet ui ∼ U(0, 1). Draw 1000 random ui and construct a histogram of the results. What are the mean and standard deviation? Repeat the previous problem, only assume that the options trader purchases 1000 1-year at-the-money straddles. 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 S1 follows equation (20.26) with δ = 0. Consider an asset that follows the process dS2 = α2S2 dt − σ2S2 dZ Show that (α1 − r)/σ1=−(α2 − r)/σ2. S1 and S2 that eliminates risk.) Suppose that ln(S) and ln(Q) have correlation ρ =−0.3 and that S(0) = $100, Q(0) = $100, r = 0.06, σS = 0.4, and σQ = 0.2. Neither stock pays dividends. Use equation (20.38) to find the price today of claims that pay a. ...
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