For all the problems in this exam. Assume there are three assets whose price processes are R, S1, and S2. Assets S1 and S2 pay constant dividend yields of q1 and 42 respectively. In addition, = rdt, dR R dS1 Si dS2 S2 = Midt +01dB1 , : = M2 dt +02dB2, where B1 and B2 are Brownian motions under the actual probability measure with correlation P and where r, M1, M2, 01, 02 and p are all constants. Part I. In the following 4 questions, provide a brief explanation to your answer. No credits without explanation. 1. Let Z = S1 S2. What is the volatility of Z? (15 points) For all the problems in this exam. Assume there are three assets whose price processes are R, S1, and S2. Assets S1 and S2 pay constant dividend yields of q1 and 42 respectively. In addition, = rdt, dR R dS1 Si dS2 S2 = Midt +01dB1 , : = M2 dt +02dB2, where B1 and B2 are Brownian motions under the actual probability measure with correlation P and where r, M1, M2, 01, 02 and p are all constants. Part I. In the following 4 questions, provide a brief explanation to your answer. No credits without explanation. 1. Let Z = S1 S2. What is the volatility of Z? (15 points)