Questions from Business Statistics

Q: What happens to the variance-gamma model as the parameter v

What happens to the variance-gamma model as the parameter v tends to zero?

Q: Use a three-time-step tree to value an American

Use a three-time-step tree to value an American put option on the geometric average of the price of a non-dividend-paying stock when the stock price is $40, the strike price is $40, the risk-free inte...

Q: Can the approach for valuing path-dependent options in Section 27

Can the approach for valuing path-dependent options in Section 27.5 be used for a 2-year American-style option that provides a payoff equal to
, where
is the average asset price over the three mont...

Q: Verify that the 6.492 number in Figure 27.3

Verify that the 6.492 number in Figure 27.3 is correct.

Q: Examine the early exercise policy for the eight paths considered in the

Examine the early exercise policy for the eight paths considered in the example in Section 27.8. What is the difference between the early exercise policy given by the least squares approach and the ex...

Q: Consider a European put option on a non-dividend paying stock

Consider a European put option on a non-dividend paying stock when the stock price is $100, the strike price is $110, the risk-free rate is 5% per annum, and the time to maturity is one year. Suppose...

Q: When there are two barriers how can a tree be designed so

When there are two barriers how can a tree be designed so that nodes lie on both barriers?

Q: Consider a variable that is not an interest rate: (

Consider a variable that is not an interest rate: (a) In what world is the futures price of the variable a martingale? (b) In what world is the forward price of the variable a martingale? (c) Defining...

Q: Consider an 18-month zero-coupon bond with a face

Consider an 18-month zero-coupon bond with a face value of $100 that can be converted into five shares of the company’s stock at any time during its life. Suppose that the current share price is $20,...

Q: What is Merton’s mixed jump–diffusion model price for a European

What is Merton’s mixed jump–diffusion model price for a European call option when r =5%, q =0, =0:3, k = 50%, =25%, S0= 30, K= 30, s = 50%, and T = 1. Use DerivaGem to check your price.