Homework Answers
There are 26 possible letters
So n=26
Such that there is one option
m=1
Then the probability of M/N=1/26
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find the probability that a european put option with underlying s finishes in the money a) Let Y e*t, Find the stochastic differential equation satisfied by t. b) Let Zt -eatX. Find the...
(6 marks) Consider a filtered probability space (2,F,P, Ftte.). a. (2 marks) Let the stochastic p...
(6 marks) Consider a filtered probability space (2,F,P, Ftte.). a. (2 marks) Let the stochastic process (Xo.7] have independent increments and sat- b. (2 marks) Let eo.] be a stochastic process with Ep[X] Xo for all t E [0,T]. Is c. (2 marks) Let (W be a Brownian motion. Given c 0, and define the stochastic isfies Ep[IXll < oo fort [0,T]. Is the stochastic process {Ztieo.r], where z, = xt-EP[Xt] is a martingale with respect to {Ft}120 ? Explain....
2. Solving the generalized geometric Brownian motion equation. Let S(t) be a positive stochastic process that...
2. Solving the generalized geometric Brownian motion equation. Let S(t) be a positive stochastic process that satisfies the generalized geometric Brownian motion SDE dS(t) = u(t)S(t) dt + o(t)S(t) dW(t), where u(t) and o(t) are processes adapted to the filtration Ft, t > 0. (a) Use Itô’s lemma to compute d log S(t). Simplify so that you have a formula for d log S(t) that does not involve S(t). (b) Integrate the formula you obtained in (a), and then exponentiate...
Question 1 Consider the derivation of the Black-Scholes model of option pricing. Let S=S(t) be the...
Question 1 Consider the derivation of the Black-Scholes model of option pricing. Let S=S(t) be the underlying stock price at time t and let f=f(S, t) be the option price at time t. a) Write down the value P of the portfolio defined in the Black-Scholes model. [2 marks] b) Use Itô’s lemma to find an expression for the change Δf in the discrete time Δt. [5 marks] c) Use the expression you have found in point b) to find...
Q3. Let Grepresent a system described by the following differential equation: diye) + y(t) = dre)...
Q3. Let Grepresent a system described by the following differential equation: diye) + y(t) = dre) - 10) where x(1) is the input signal and y(t) is the output signal. a. (15 points) Determine the output yı(t) of G when the input is x below: 0 0 : otherwise b. (10 points) Consider a feedback loop that contains the system G, as shown below: Find a differential equation that relates w(l) to yo) when K = 10. Your differential equation...
3. Let U-Bt- tB be Brownian bridge on [0, 1], where {BiJosesi is a Brownian process (i) Show E(Ut0 (ii) Show Cov(U,, Ut) s(1- t) for 0 s ts1. (ii) Let Xg(t)B Find functions g and h such that X, has t...
3. Let U-Bt- tB be Brownian bridge on [0, 1], where {BiJosesi is a Brownian process (i) Show E(Ut0 (ii) Show Cov(U,, Ut) s(1- t) for 0 s ts1. (ii) Let Xg(t)B Find functions g and h such that X, has the same covariance as a Brownian bridge.
3. Let U-Bt- tB be Brownian bridge on [0, 1], where {BiJosesi is a Brownian process (i) Show E(Ut0 (ii) Show Cov(U,, Ut) s(1- t) for 0 s ts1. (ii) Let Xg(t)B...
7. Consider the differential equation (a) Show that z 0 is a regular singular point of the above differential equation (b) Let y(x) be a solution of the differential equation, where r R and the s...
7. Consider the differential equation (a) Show that z 0 is a regular singular point of the above differential equation (b) Let y(x) be a solution of the differential equation, where r R and the series converges for any E (-8,s), s > 0 Substitute the series solution y in to the differential equation and simplify the terms to obtain an expression of the form 1-1 where f(r) is a polynomial of degree 2. (c) Determine the values of r....
Consider the differential equation e24 y" – 4y +4y= t> 0. t2 (a) Find T1, T2,...
Consider the differential equation e24 y" – 4y +4y= t> 0. t2 (a) Find T1, T2, roots of the characteristic polynomial of the equation above. 11,12 M (b) Find a set of real-valued fundamental solutions to the homogeneous differential equation corresponding to the one above. yı(t) M y2(t) = M (C) Find the Wronskian of the fundamental solutions you found in part (b). W(t) M (d) Use the fundamental solutions you found in (b) to find functions ui and Usuch...
a) Find the general solution of the differential equation Y'(B) + 2y(s) = (1)3 8>0. b)...
a) Find the general solution of the differential equation Y'(B) + 2y(s) = (1)3 8>0. b) Find the inverse Laplace transform y(t) = --!{Y(s)}, where Y(s) is the solution of part (a). c) Use Laplace transforms to find the solution of the initial value problem ty"(t) – ty' (t) + y(t) = te", y(0) = 0, y(0) = 1, fort > 0. You may use the above results if you find them helpful. (Correct solutions obtained without Laplace transform methods...
Consider the differential equation y' (t) = (y-4)(1 + y). a) Find the solutions that are...
Consider the differential equation y' (t) = (y-4)(1 + y). a) Find the solutions that are constant, for all t2 0 (the equilibrium solutions). b) In what regions are solutions increasing? Decreasing? c) Which initial conditions y(0) = A lead to solutions that are increasing in time? Decreasing? d) Sketch the direction field and verify that it is consistent with parts a through c. a) The solutions are constant for (Type an equation. Use a comma to separate answers as...
Q4 a) Find the general solution of the differential equation Y') + {y(t) = 8(6+1)5; 8>0....
Q4 a) Find the general solution of the differential equation Y') + {y(t) = 8(6+1)5; 8>0. Y'8 8 >0. 8(8-1)3 b) Find the inverse Laplace transform y(t) = £ '{Y(3)}, where Y(s) is the solution of part (a). c) Use Laplace transforms to find the solution of the initial value problem ty"(t) – ty' (t) + y(t) = te, y(0) = 0, y(0) = 1, for t > 0. You may use the above results if you find them helpful....
(6 marks) Consider a filtered probability space (2,F,P, Ftte.). a. (2 marks) Let the stochastic process (Xo.7] have independent increments and sat- b. (2 marks) Let eo.] be a stochastic process with Ep[X] Xo for all t E [0,T]. Is c. (2 marks) Let (W be a Brownian motion. Given c 0, and define the stochastic isfies Ep[IXll < oo fort [0,T]. Is the stochastic process {Ztieo.r], where z, = xt-EP[Xt] is a martingale with respect to {Ft}120 ? Explain....
2. Solving the generalized geometric Brownian motion equation. Let S(t) be a positive stochastic process that satisfies the generalized geometric Brownian motion SDE dS(t) = u(t)S(t) dt + o(t)S(t) dW(t), where u(t) and o(t) are processes adapted to the filtration Ft, t > 0. (a) Use Itô’s lemma to compute d log S(t). Simplify so that you have a formula for d log S(t) that does not involve S(t). (b) Integrate the formula you obtained in (a), and then exponentiate...
Q3. Let Grepresent a system described by the following differential equation: diye) + y(t) = dre) - 10) where x(1) is the input signal and y(t) is the output signal. a. (15 points) Determine the output yı(t) of G when the input is x below: 0 0 : otherwise b. (10 points) Consider a feedback loop that contains the system G, as shown below: Find a differential equation that relates w(l) to yo) when K = 10. Your differential equation...
3. Let U-Bt- tB be Brownian bridge on [0, 1], where {BiJosesi is a Brownian process (i) Show E(Ut0 (ii) Show Cov(U,, Ut) s(1- t) for 0 s ts1. (ii) Let Xg(t)B Find functions g and h such that X, has the same covariance as a Brownian bridge.
3. Let U-Bt- tB be Brownian bridge on [0, 1], where {BiJosesi is a Brownian process (i) Show E(Ut0 (ii) Show Cov(U,, Ut) s(1- t) for 0 s ts1. (ii) Let Xg(t)B...
7. Consider the differential equation (a) Show that z 0 is a regular singular point of the above differential equation (b) Let y(x) be a solution of the differential equation, where r R and the series converges for any E (-8,s), s > 0 Substitute the series solution y in to the differential equation and simplify the terms to obtain an expression of the form 1-1 where f(r) is a polynomial of degree 2. (c) Determine the values of r....
Consider the differential equation e24 y" – 4y +4y= t> 0. t2 (a) Find T1, T2, roots of the characteristic polynomial of the equation above. 11,12 M (b) Find a set of real-valued fundamental solutions to the homogeneous differential equation corresponding to the one above. yı(t) M y2(t) = M (C) Find the Wronskian of the fundamental solutions you found in part (b). W(t) M (d) Use the fundamental solutions you found in (b) to find functions ui and Usuch...
a) Find the general solution of the differential equation Y'(B) + 2y(s) = (1)3 8>0. b) Find the inverse Laplace transform y(t) = --!{Y(s)}, where Y(s) is the solution of part (a). c) Use Laplace transforms to find the solution of the initial value problem ty"(t) – ty' (t) + y(t) = te", y(0) = 0, y(0) = 1, fort > 0. You may use the above results if you find them helpful. (Correct solutions obtained without Laplace transform methods...
Consider the differential equation y' (t) = (y-4)(1 + y). a) Find the solutions that are constant, for all t2 0 (the equilibrium solutions). b) In what regions are solutions increasing? Decreasing? c) Which initial conditions y(0) = A lead to solutions that are increasing in time? Decreasing? d) Sketch the direction field and verify that it is consistent with parts a through c. a) The solutions are constant for (Type an equation. Use a comma to separate answers as...
Q4 a) Find the general solution of the differential equation Y') + {y(t) = 8(6+1)5; 8>0. Y'8 8 >0. 8(8-1)3 b) Find the inverse Laplace transform y(t) = £ '{Y(3)}, where Y(s) is the solution of part (a). c) Use Laplace transforms to find the solution of the initial value problem ty"(t) – ty' (t) + y(t) = te, y(0) = 0, y(0) = 1, for t > 0. You may use the above results if you find them helpful....
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